The January-March 2018 quarter continued to be a weak one for incumbent operators, Airtel and Idea Cellular, owing to lingering tariff wars, ARPU contraction, a reduction in international termination charges and an increase in service tax. According to Gopal Vittal, managing director (MD) and chief executive officer, India and South Asia, “The telecom industry continued to witness below-cost, artificially suppressed pricing during the quarter. Industry revenues were adversely impacted due to a reduction in international termination rates.” The operators also saw unrelenting rate pressure on voice and mobile data services as high ARPU consumers migrated to lower priced unlimited voice bundled data plans.
Even as Airtel posted a year-on-year decline in its net income and Idea Cellular’s losses widened, Reliance Jio Infocomm Limited (RJIL) went on to post a sharp increase in its stand-alone profit. Commenting on the results, Mukesh D. Ambani, chairman and MD, Reliance Industries Limited, said, “RJIL’s strong financial results in a competitive market environment demonstrate the robustness of our business model and our ability to offer maximum value to our customers and partners. A full-blown social, mobile and digital revolution is under way across the world, and I am glad that India is not being left behind in any way with the advent of RJIL.”
Exploding data consumption, in fact, was the only silver lining for all operators, as was market consolidation, which promises better future prospects for the industry. As per Deutsche Bank’s market research report on Indian telecom, the Vodafone India-Idea merged entity is expected to achieve Rs 40 billion savings on network operating expenses, mainly on account of tower footprint rationalisation. Similarly, Airtel will start reaping the benefits of acquiring the assets of smaller operators (exiting the sector) at distressed valuations.
The key takeaways from the financial results of Airtel, Idea and RJIL for the quarter and full year ended March 2018 are as follows…
Bharti Airtel’s consolidated net income declined by about 78 per cent from Rs 3.73 billion during the quarter ended March 2017 to Rs 0.83 billion in the corresponding quarter in 2018. Revenues declined by 10.5 per cent from Rs 219.35 billion to Rs 196.34 billion during the same period. The revenues from Indian operations for the quarter under consideration stood at Rs 147.96 billion, a decline of about 13.1 per cent from a year ago. Further, revenue from mobile services slipped by 20.2 per cent to Rs 103.53 billion due to a continuous decline in ARPU. The overall ARPU for the quarter stood at Rs 116 as against Rs 158 in the quarter ended March 2017.
On the operations side, mobile data traffic has grown more than six times to 1,540 billion MBs in the quarter ended March 2018 as compared to 225 billion MBs in the corresponding quarter in 2017. The total number of broadband users grew by almost 80 per cent from 42 million to 76 million.
Meanwhile, in constant currency terms, the company’s African revenues grew by 10.7 per cent year on year, led by strong growth in data and Airtel Money transaction value. The company also acquired Tigo Rwanda’s country operations in Africa during the quarter.
On a full-year basis, Bharti Airtel’s annual consolidated revenues for 2017-18 stood at Rs 836.88 billion, reporting a decline of 12.3 per cent as compared to Rs 954.68 billion in 2016-17. Its net income declined by 71 per cent to Rs 10.99 billion from Rs 38 billion. For its Indian operations, total revenues declined by 13 per cent from Rs 734.22 billion in 2016-17 to Rs 640.61 billion in 2017-18. Earnings before interest and taxes declined by 49 per cent from Rs 150.55 billion to Rs 76.55 billion during the same period.
Airtel’s net debt stood at Rs 952.28 billion as of March 31, 2018. In a bid to pare its net debt, the company is looking at options like listing its African unit and selling some stake in the Bharti Infratel-Indus Towers merged entity over the next three years. The operator plans to raise as much as $1.5 billion by listing about 25 per cent equity in its African unit by early 2019 in either London or South Africa.
Vodafone India reported a service revenue of Rs 348.55 billion during the year ended March 2018, a decline of 18.9 per cent as compared to the previous year. The revenues were impacted by a reduction in interconnect usage charges, international termination charges and suppressed pricing in the industry. The EBITDA for the period stood at Rs 77.66 billion. Meanwhile, sustained and prioritised capital investments stood at Rs 72.51 billion with a capex intensity of 20.7 per cent.
As far as the operational performance is concerned, the company registered an ARPU of Rs 119 in the fourth quarter of the reporting year. Data usage grew by 350 per cent during 2017-18. Vodafone added 22 million broadband users year on year to close at 59.8 million 3G/4G subscribers.
RJIL has posted stand-alone revenue of Rs 71.28 billion from operations for the quarter ended March 2018. The stand-alone Earnings before interest, taxes, depreciation and amortisation stood at Rs 26.94 billion and the EBITDA margin stood at 37.8 per cent during the same period. The stand-alone net profit stood at Rs 5.1 billion. On the operations side, RJIL’s total wireless data traffic stood at 5.06 billion GB during the quarter and the total voice traffic stood at 372.18 billion minutes. Its ARPU during the quarter ended March 2018 stood at Rs 137.1, the highest in the industry.
For the full-year ended March 2018, the stand-alone net profit stood at Rs 7.23 billion. The stand-alone operating revenue stood at Rs 201.54 billion, while the stand-alone EBITDA stood at Rs 67.34 billion. The company recorded an EBITDA margin of 33.4 per cent for 2017-18.
Idea Cellular has posted a net loss (total comprehensive income for the period) of Rs 9.3 billion during the quarter ended March 2018, up from Rs 3.25 billion during the corresponding quarter in 2017. Meanwhile, revenues stood at Rs 61.37 billion, down 20.5 per cent year on year, owing to the prolonged price war and the reduction in interconnect and international termination rates. Idea’s EBITDA fell by about 34 per cent from Rs 21.99 billion to Rs 14.47 billion during the same period. Further, the EBITDA margin declined from 26.1 per cent to 23.6 per cent.
On the operations front, total data volume on networks grew by 5.4 times from 127.01 billion MB to 818.05 billion MB. The operator had 39 million broadband subscribers (3G and 4G). Meanwhile, its ARPU dropped from Rs 142 to Rs 105.
On a full-year basis, Idea’s gross revenue declined by 20.5 per cent from Rs 355.75 billion in 2016-17 to Rs 282.78 billion in 2017-18. The operator’s standalone loss (after tax) increased from Rs 4.07 billion to Rs 41.62 billion during the same period. Idea’s EBITDA fell by 41 per cent to Rs 60.47 billion in 2017-18, as against Rs 102.43 billion in 2016-17. The EBITDA margin for the year declined to 21.4 per cent from 28.8 per cent in the preceding year. The net debt stood at Rs 523.3 billion as of March 31, 2018, including a large component of debt from the Department of Telecommunications under deferred payment obligation for spectrum acquired in auctions.
Despite a disappointing financial performance and a challenging year, the long-term outlook for the sector remains positive. In fact, telcos’ optimism regarding India’s growth story is evident from the substantial investments that continue to flow into the sector. Airtel ended the financial year with its highest ever capex of Rs 240 billion, according to Vittal, and the company will continue its roll-out momentum in 2018-19 as well. Idea’s capex for the quarter stood at Rs 21.1 billion, taking the total capex for 2017-18 to Rs 70 billion. RJIL reported a capex of Rs 140 billion for the January-March 2018 quarter alone. The company has spent Rs 280 billion on capex in the past three quarters. The company’s capex is expected to remain high, since it plans to increase the number of base stations substantially in the coming quarters.
The growing mobile broadband subscriber additions for the incumbents (Bharti Airtel, Vodafone, Idea Cellular) indicate that their 4G coverage and pricing gaps with RJIL are finally shrinking. For instance, Airtel claims to have added the highest ever mobile data customers of 15 million during the quarter ended March 2018.
Going forward, trends like consolidation in the telecom industry, increasing broadband usage and growing mobile telephony uptake in the rural hinterland will pave the way for stronger financial and operational growth.
Akanksha Mahajan Marwah