Telecom operators in India have reported their financial results for the quarter ended June 2019. Reliance Jio continued to deliver another quarter of healthy financial performance, recording a double-digit year-on-year growth in net profits. In contrast, its two rivals, Bharti Airtel and Vodafone Idea, reported losses. This was the first time in more than a decade that Airtel was posting a consolidated loss.
There was also a reordering of the telecom operator hierarchy in terms of mobile revenue and subscriber market share during the quarter. Airtel displaced Vodafone to occupy the second spot in terms of mobile revenue market share. Vodafone Idea reported an overall revenue of Rs 112.69 billion during April-June 2019 (the telco does not provide a break-up of its revenues), which, when adjusted for fixed line and enterprise revenues assumed at Rs 6 billion by industry analysts, resulted in a mobile revenue of Rs 106.69 billion. This was lower than the mobile revenue reported by Bharti Airtel at Rs 108.66 billion. Further, Jio registered the highest mobile revenue in the industry at Rs 116.79 billion.
The introduction of the Indian Accounting Standard 116 (IndAS 116), with effect from April 1, 2019, also impacted the financial performance of the three telcos during the quarter. The standard removes the distinction between operating and finance leases, and classifies all leases as finance leases, in turn, inflating reported EBITDA, but adding the element of depreciation and amortisation costs as well.
On the operational side, Reliance Jio overtook Airtel to become the second largest telco in the country in terms of subscribers, as per the data compiled by the Telecom Regulatory Authority of India. Airtel, meanwhile, recorded the highest average data usage amongst its peers at 11.9 GB per month per user. Much of this can be attributed to the telco’s aggressive spending on the content side, which can be reflected in its strategic deals with ZEE5 and Netflix. Airtel also registered the industry’s best ARPU of Rs 129.
Overall, the April-June 2019 quarter marked yet another period of gloomy financial performance for the industry, with no signs of a recovery for at least a few quarters. A look at the highlights of the operational and financial results reported by telcos…
Bharti Airtel
The company recorded its first consolidated net loss in 14 years at Rs 28.66 billion during the quarter ended June 2019, on account of exceptional items. During the corresponding quarter in 2018, it had reported a net profit of Rs 0.97 billion.
Airtel’s consolidated revenues, however, increased by about 5 per cent from Rs 197.99 billion during the quarter ended June 2018 to Rs 207.38 billion during the same quarter in 2019. This growth was mostly driven by the telco’s African operations, which recorded a 10.2 per cent jump on a year-on-year basis. Meanwhile, revenues from its India operations grew by 2 per cent to reach Rs 153.45 billion. The EBITDA margin for the India operations stood at 39.5 per cent, up 6.6 per cent on an annual basis.
On the operational front, Airtel has been making concerted efforts to migrate its 2G subscribers to 4G services and has so far weeded out close to 70 million low-grade customers from its network. The telco plans to shut down its entire 3G network across all 22 telecom circles by March 2020. Earlier, in June 2019, Airtel had shut down its 3G network in the Kolkata circle and refarmed the 900 MHz spectrum used for 3G to strengthen its 4G network in the city. The company has planned more such shutdowns over the next nine months. The move from 3G to 4G seems to have cost Airtel dearly as the telco registered a loss of close to Rs 1.43 billion on account of the accelerated depreciation of 3G equipment.
On the operational front, Airtel recorded data usage of 11.9 GB per subscriber per month. Voice usage per consumer per month stood at 888 minutes. Further, the ARPU from mobile services increased to Rs 129 during the April-June 2019 quarter.
The consolidated net debt of Airtel stood at Rs 1.17 trillion as of June 30, 2019. The company has initiated a slew of measures to strengthen its balance sheet, including raising $5.7 billion through a rights issue, a stake sale in Airtel Africa and a subsequent initial public offering of Airtel Africa. The group’s gross proceeds amounted to $750 million from a mix of new institutional as well as existing Airtel Africa investors.
Reliance Jio
Reliance Jio reported a 45.6 per cent jump in its stand-alone net profit from Rs 6.12 billion during the quarter ended June 2018 to Rs 8.91 billion during the corresponding quarter in 2019. Stand-alone revenue from operations increased by 44 per cent from Rs 81.09 billion to Rs 116.79 billion during the same period. EBITDA grew by 49 per cent year on year and stood at Rs 46.86 billion during the quarter ended June 2019, while the EBITDA margin stood at 40.1 per cent.
On the operational front, customer engagement improved with higher data usage of 11.4 GB per user per month. The average voice consumption per subscriber was recorded at 821 minutes per month and the ARPU stood at Rs 122 per subscriber per month.
The company maintained a strong momentum in subscriber acquisition with a gross addition of 33.8 million (and a net addition of 24.5 million), taking its total subscriber base to 331.3 million as of June 30, 2019.
During the quarter, Jio also entered into an agreement with Brookfield and affiliates for an investment of Rs 252.15 billion in its tower infrastructure investment trust (InvIT). This is a step forward in optimising the capital structure of Jio’s digital and infrastructure businesses. The transaction validates that spinning off passive infrastructure assets through the InvIT structure can help unlock value. Meanwhile, the beta trial of Jio Fiber services has reached its final stage and the telco claims to have had an encouraging response.
Vodafone Idea
Vodafone Idea Limited registered a 4.3 per cent decline in revenue from Rs 117.75 billion during the quarter ended March 2019 to Rs 112.7 billion during the quarter ended June 2019. According to the operator, the quarter-on-quarter decline in revenue is primarily due to a churn in customers as well as ARPU down-trading.
Vodafone Idea’s EBITDA for the reported quarter stood at Rs 36.5 billion. The impact of lower revenues was partially offset by further cost synergy realisation between the two merged telcos. The underlying operating expenses (excluding licence fees and spectrum usage charges, and roaming and access charges) reported during the quarter ended June 2019 were lower by Rs 14.8 billion compared to the corresponding period in 2018, after adjusting for inflation-driven cost increases and incremental network roll-out. On an annualised basis, this represents around 70 per cent of the operator’s target opex synergy of Rs 84 billion, indicating that it is on track to realise its full opex synergy targets by the quarter ending June 2020.
On the operational front, the operator’s blended ARPU stood at Rs 108 during the quarter. The average minutes of usage per user per month stood at 690 minutes, while data usage per subscriber per month stood at 9.6 GB.
The telco’s gross debt stood at Rs 1.2 trillion as of June 30, 2019, including deferred spectrum payment obligations due to the government. During the April-June 2019 quarter, Vodafone Idea also wrote off Rs 2.1 billion on account of its decision to close its payments bank business, M-Pesa.
Conclusion
The intense competition in the market has left little room for telcos to exercise differential pricing in the prepaid segment. While the incumbents can look at some price re-engineering in post-paid plans (Jio does not focus on the post-paid segment), post-paid customers comprise only about 5 per cent of the country’s total user base. With any major tariff restructuring ruled out, operators would now have to focus on exploring new revenue streams to bring back profitability. To this end, they are already monetising their infrastructure assets (tower and fibre) to deleverage their balance sheets. s
Akanksha Mahajan Marwah
