The dynamics of the telecom sector may be on the cusp of change, but this is not yet reflected in the financial results. The sector has effectively been a duopoly for years, and Reliance Jio and Bharti Airtel continue to remain dominant players. Both telecom service providers have rolled out 5G at record speed, and  they are competitors in fibre-to-the-home (FTTH) as well as services targeted at businesses. Both claim that capex intensity is easing off, which implies more free cash flows in the future.

In the third place is Vodafone Idea Limited (Vi), which has a huge debt burden and large accumulated losses. The operator has been too cash strapped to compete meaningfully. It is lagging in terms of 4G coverage and has not rolled out 5G yet. But it has put together enough of a war chest to strengthen its network.

 The fourth player is Bharat Sanchar Nigam Limited (BSNL), a public sector undertaking (PSU) with massive accumulated losses and operational inefficiencies. BSNL has only just started rolling out 4G.

Urban teledensity is saturated and rural teledensity has grown slowly, so market growth has been very incremental. Jio and Airtel have pushed fibre in order to improve fixed broadband penetration. So far, new revenues from 5G corporate uptake have not met expectations.

All four players have benefited from market consolidation. The three private operators have hiked tariffs, which has raised their ARPUs. BSNL has not hiked tariffs and, in the past few months, it has gained subscribers in a price-sensitive market.

There are several reasons why this dynamic of duopoly, with two telcos lagging behind, is likely to be disturbed.

There could be a rise in rural teledensity, and new technologies such as satellite broadband may open up underserved geographies. in that event, new users in underpenetrated areas and higher rural ARPUs will open up new revenue streams for many business segments, not just the telecom sector.

 Vi has raised cash and invested it in capex. It is strengthening its network, and looks to roll out 5G soon. It has a low base of 4G users, so it could see a jump in ARPUs as users upgrade.

BSNL has launched initiatives that signal aggressive intent. Some of these, such as offering national Wi-Fi on roaming and helping set up private 5G networks, could be very attractive for users, while the operator’s big rural footprint allows it to perform a national service by enabling digital access for the underserved.

The PSU is pushing FTTH. It has also started to roll out 4G and intends to soon upgrade to 5G. It claims to be aiming for a 20-25 per cent mobile market share, though it currently holds only 7.5 per cent. The recovery of share is possible only if it leverages its extensive rural presence to improve teledensity.

The opening up of satellite broadband has created the possibility of rapidly expanding the market in a different way. This will pull in global service providers  including, notably, Starlink, alongside Jio and Airtel, which are all set to enter the field through partnerships.

Around 40 per cent of India consists of difficult terrain where terrestrial networks are hard to roll out. Satellite broadband could be a game changer, and the promise of new revenue streams will attract competition, keeping tariffs affordable.

The technology is different, and a new ecosystem will develop around offering seamless access, with handover from satellite to terrestrial, ideally taking place on the same devices. This is an opportunity for sure, but it also implies new rounds of capex as well as research and development commitments.

All this is in the future. The July-September 2024 financial results do not fully reflect these possibilities, but they must be viewed in this context. The stock market attitude will be driven by investor perception of how the market dynamics will change.

Jio has close to 480 million mobile subscribers, Airtel has around 407 million Indian mobile subscribers, Vi has around 205 million and BSNL has around 92 million. Jio’s entire base is on mobile broadband, though it offers fibre as well. Airtel has roughly 300 million Indian subscribers on mobile broadband, and also offers fibre. Both market leaders have a significant 5G base. Vi has around 126 million 4G subscribers, while BSNL has just started rolling out 4G.

BSNL is unlisted and has not released its financial results. Jio is an unlisted subsidiary of Reliance Industries Limited, but there is talk that it may be soon spun off and listed like its sister company, Jio Financial Services. Vi and Bharti Airtel are listed companies, with Airtel operating across multiple nations.

Bharti Airtel

Bharti Airtel’s net profit in the second quarter of 2024-25 surged 167 per cent to Rs 35.93 billion, from Rs 13.41 billion a year earlier. Revenue from operations for the July-September 2024 quarter rose 12 per cent year on year to Rs 414.73 billion.

The telco’s India revenue grew 16.9 per cent year on year to Rs 315.61 billion, led by an 18.5 per cent growth in the mobile services segment, which benefited from tariff hikes and higher smartphone penetration. The ARPU for India mobile services rose to Rs 233 per month, up from Rs 203 a year ago.

Airtel’s consolidated earnings before interest, taxes, depreciation and amortisation (EBITDA) reached Rs 220.21 billion, up 12 per cent year on year, with an EBITDA margin of 53.1 per cent. The India business posted an even higher EBITDA margin of 54.8 per cent.

Airtel’s overall customer base stands at around 563 million across 15 countries, with India accounting for 407 million and Africa for 157 million. Mobile data consumption in India surged 22.6 per cent, with average monthly usage reaching 23.9 GB per customer. The company added 4.2 million smartphone data customers in India during the quarter.

The telco also continued its network expansion, adding around 5,000 towers and 15,200 mobile broadband stations during the quarter. Additionally, Airtel deployed new spectrum acquired in June to enhance connectivity across key regions.

As part of its financial strategy, Airtel prepaid Rs 84.65 billion towards deferred spectrum liabilities from 2016, which had an interest rate of 9.3 per cent, contributing to a net debt-EBITDA ratio of 2.5 (September 30, 2024).

The Airtel Home business reported a 17.3 per cent revenue increase, with the addition of 583,000 new customers, bringing its customer base to 8.6 million. Airtel Business, which focuses on enterprise solutions, saw a 10.7 per cent rise in revenue, while Digital TV grew 1 per cent.

Airtel’s Africa revenues, in constant currency, rose 20.8 per cent year on year, but EBITDA margins in the region declined by 201 basis points.

Reliance Jio

Reliance Jio Infocomm has about 479 million mobile customers, having added a net 19 million users over 12 months. The Telecom Regulatory Authority of India puts its mobile market share at over 40 per cent.

Jio recorded a year-on-year ARPU increase of 7.4 per cent to Rs 195.10 in the second quarter of 2024-25, buoyed by a tariff hike. The telco reportedly has 148 million customers for its True5G service, and 2.8 million fibre-connected homes.

The overall Jio Platforms business – the digital technology unit that houses the mobile unit – posted a revenue growth of almost 18 per cent in the second quarter to Rs 371 billion, while EBITDA jumped 18 per cent to Rs 159 billion, and profit after tax rose by 23.4 per cent to Rs 65.4 billion.

Vodafone Idea

Vi reported a net loss of Rs 71.76 billion, compared to Rs 64.32 billion in the first quarter of 2024-25. The consolidated revenue from operations grew 4 per cent quarter on quarter to reach Rs 109.32 billion in the second quarter, up from Rs 105.08 billion in the first quarter. Vi’s EBITDA rose 8.2 per cent to Rs 45.49 billion from Rs 42.04 billion in the previous quarter.

Vi concluded a mega deal of $3.6 billion for the supply of network equipment over a period of three years to Nokia, Ericsson and Samsung. Delivery and deployment commenced in October.

The operator’s overall subscriber base declined to 205 million from 210 million, and the 4G subscriber base to 126 million from 126.7 million quarter on quarter. The blended ARPU stands at Rs 166; upgrading of 3G/2.5 G users to 4G/5G would significantly raise the ARPU.

 Vi’s capex during the current fiscal year will be about Rs 100 billion. The capex increased 79 per cent to Rs 13.6 billion in the second quarter from Rs 7.6 billion in the first quarter. 5G roll-out will
start in the fourth quarter of 2025 (January-March 2025).

Vi’s total debt stands at over Rs 2.224 trillion. This includes Rs 32.71 billion owed to banks and financial institutions, and Rs 2.123 trillion as government dues. It comprises Rs 1.42 trillion for deferred spectrum and Rs 703 billion as adjusted gross revenue liability. The telco may be seeking another bailout, whereby the government dues could be partially converted to equity.

 Vi is seeking a waiver of Rs 247 billion in bank guarantees that it is required to submit 13 months in advance of the spectrum payment due between October 2025 and September 2026. Vi also has to pay Rs 272 billion for deferred spectrum instalments from October 20, 2025 to March 31, 2026, and adjusted gross revenue instalments from March 31, 2026.

If it can ease its debt burden through conversion to equity, or defer its debt payments, it would be better placed to compete. However, a huge equity base where the government is the largest shareholder may impact its market valuation.

Conclusion

On the surface, the second quarter of 2024-25 was a stable quarter. However, capex by BSNL and Vi, and clearance for satellite broadband services, indicate likely changes in market dynamics going forward.

Devangshu Datta