According to IIFL Securities, there is a high probability of 4G prepaid tariff hikes in mid-2023. With 5G-related average revenue per user (ARPU) uplift likely to be insignificant in near future, 4G prepaid tariff hike remains the most important ARPU lever for telcos.
The brokerage firm added that Reliance Jio’s parent, Reliance Industries Limited, has indicated that the telco may opt for an initial public offering (IPO) in 18-24 months, which will require improving earnings before interest, tax, depreciation and amortisation (EBITDA) and free cash flows.
Besides tariff hikes, 2023 is expected to be the year of peak capex for telcos as they continue their 5G rollout plans. According to IIFL Securities, Jio is targeting to take its 5G unique location count to 200,000 by December 2023. This implies that those locations would be two-thirds of its 4G unique locations. Meanwhile, Bharti Airtel would not be far behind at 150,000 5G unique locations by March 2024. Jio’s capex is expected to be around $14 billion as it plans to install 5G radios of both the 700 MHz and the 3.5 GHz bands on all 200,000 sites, amounting to $40,000 per site all-in-capex. Whereas, Airtel’s capex is expected to be around $7 billion if it decides to forgo bidding for the 700 MHz frequency in the 2023 telecom spectrum auctions. If it does bud for the low-frequency band, its capex could be as high as $18.6 billion.
Further, the firm estimates the total capacity of the two telcos to almost treble to 1,400 PB/day by March 2024, from about 500 PB/day in September 2022. This capacity should be adequate for handling traffic requirements for two to three years, especially with handsets likely to be the near-term limiting factor for 5G adoption.