Pricing pressures and rising finance costs continued to weigh down telecom operators’ topline and bottomline during the July-September 2017 quarter. While the MBs and minutes of usage (MoUs) on networks witnessed an upsurge, operator ARPUs slipped on an annual basis.

Reliance Jio Infocomm Limited (RJIL), an unlisted wireless subsidiary of Reliance Industries Limited, reported its earnings for the first time since it started operations in September 2016.

Debt management was the flavour of the quarter as operators initiated some se­­ri­­ous steps to ease their balance sheets. Tata Tele­services Limited (TTSL) decided to me­r­­ge its consumer business with Bhar­ti Ai­r­tel, while Reliance Communi­cations (RCOM) recently announced a new debt re­structuring plan. The Aircel-RCOM fall­ing out came as a surprise and Aircel will now resort to a new means of paring its debt.

The road ahead for sector players is expected to be equally challenging, as the Telecom Regulatory Authority of India’s (TRAI) move to reduce interconnect user charges (IUC) is likely to prolong the financial distress of incumbent operators.

A look at the results of key telecom operators during the quarter-ended Sep­­tember 2017…

Bharti Airtel

Bharti Airtel reported a 76.5 per cent dec­line in its consolidated net income fr­om Rs 14.61 billion during the quarter en­ded Sep­­tember 2016 to Rs 3.43 billion during the corresponding quarter in 2017. The operator’s total revenue (from India, Southeast Asia and Africa) fell by 12 per cent from Rs 246.51 billion to Rs 217.77 billion. Its consolidated net debt grew from Rs 878.4 billion to Rs 914.8 billion during this period.

The company’s financial performance in the domestic market continued to be un­der stress even as its African operations showed some revival. Revenues from Bharti Airtel’s Indian operations declined by 14.4 per cent, from Rs 196.41 billion during the quarter ended September 2016 to Rs 168.18 billion during the corresponding quarter in 2017. Earnings before income, ta­xes, depreciation and amortisation (EBITDA) dipped by 23 per cent, from Rs 82.41 billion to Rs 63.22 billion during the same period. Mean­while, revenues from the company’s African business declined marginally, by under 2 per cent, while the EBITDA grew by 32.18 per cent.

On the operations side, the company’s subscriber base in India increased from 259.94 million in the quarter ended Sep­t­em­­ber 2016 to 282.04 million in the corres­ponding quarter in 2017. The total minutes of voice usage on the operator’s network in the country increased by 39.5 per cent, from 313.4 billion to 437.14 billion. The total data traffic on the operator’s network increased 3.4 times from 178.12 million MBs to 783.8 million MBs. The average voice usage per subscriber increa­s­ed from 406 minutes to 518 minutes. How­ever, the blended ARPU declined sharply, by 23 per cent, from Rs 188 to Rs 145. Meanwhile, the overall mobile service revenues dec­­rea­sed by 15.8 per cent from Rs 145.06 billion during the quarter ended September 2016 to Rs 122.11 billion during the corresponding quarter in 2017.

Recently, Bharti Airtel announced the acquisition of the consumer business of TTSL and Tata Teleservices Maharashtra Limited (TTML) on a debt-free cash-free basis. Airtel will only assume a small portion of Tata’s unpaid spectrum liability to the Department of Telecommunications, which is to be paid on a deferred basis. The acquisition will result in Airtel taking over TTSL’s operations across its 19 circles of operations, and will involve the transfer of all TTSL’s customers and assets (including 178.5 MHz of spectrum in the 850 MHz, 1800 MHz and 2100 MHz bands). The transaction will also give Airtel an indefeasible right to use part of Tata’s existing fibre network. The acquisition is subject to requisite regulatory approvals.

Vodafone

Vodafone India has reported an 18.66 per cent decline in service revenue from £1,495 million during the quarter ended September 2016 to £1,216 million during the corresponding quarter in 2017. Fur­ther the operator’s mobile service revenue dec­lined by 20.4 per cent from £1,425 million to £1,134 million during the same period. According to the operator, the decline in revenue was a result of intense price competition from the new entrant. Meanwhile, the operator’s subscriber base stood at 207.4 million as of September 30, 2017. Its active data customer base stood at 68 million, with 14.1 million 4G users. Moreover, the operator’s data usage inc­rea­sed by 2.47 times from 110,430 TB in quarter ended September 2016 to 383,841 TB in the corresponding quarter in 2017; while the ARPU fell by 22.80 per cent from Rs 171 to Rs 132.

Idea Cellular

Idea Cellular has reported a consolidated loss of Rs 11.07 billion during the quarter ended September 2017 against a net profit of Rs 0.91 billion during the quarter ended September 2016. This was on account of a decline of around 19.7 per cent in the operator’s revenues from Rs 93 billion during the quarter ended September 2016 to Rs 74.65 billion during the corresponding qu­a­r­­­ter in 2017. Further, the operator’s EBITDA declined by 47 per cent from Rs 28.37 billion to Rs 15.01 billion during the same period. The EBITDA margin dec­lined from 30.5 per cent to 20.1 per cent.

On the operational side, the total MoUs on Idea’s network increased from 195,504 million during the quarter ended Sep­tember 2016 to 255,035 million during the corresponding quarter in Sep­­tem­ber 2017. The total data traffic on its network inc­rea­sed three times, from 107,439 million MBs to 438,688 million MBs, despite a 30 per cent decline in total data subscribers from 54.06 million to 38.19 million. The ave­rage data usage per subscriber increased by a significant 4.48 times, from 694 MBs to 3,805 MBs. ARPUs declined by 17.21 per cent from Rs 122 to Rs 101, while the blended ARPU declined by 23.69 per cent from Rs 173 to Rs 132.

RJIL

Bogged down by the free wireless minutes offered on its networks, RJIL posted a net loss of Rs 2.7 billion for the quarter ended September 2017. The company had posted a net loss of Rs 39 million during the same quarter in 2016, when it was just one month into operations.

During the quarter under review, RJIL posted revenues of Rs 61.48 billion, up from Rs 2.9 million a year ago. The total expenditure incurred by the company was Rs 65.62 billion. RJIL’s interconnect usage charges stood at about Rs 20 billion for the quarter ended September 2017. It reported an EBITDA of Rs 14.43 billion, while its ARPU stood at Rs 156 during the quarter.

The company added 15.3 million net users during the quarter to take its total subscriber base to 138.6 million as of end-September 2017. It recorded 1.78 billion hours of high-speed video consumption per month and 14 hours of video consumption per month per user. The company’s total wireless data traffic stood at 3.78 billion GB during the quarter, while the average voice traffic was 2.67 billion minutes per day. Further, the average data consumption by RJIL’s subscribers was reported at 10 GB per month. The operator also registered 626 minutes of voice over long term evolution usage per month. Customer churn stood at about only 1 per cent per month.

RCOM

RCOM reported a consolidated net loss of Rs 27.09 billion for the quarter ended Sep­tember 2017 as against a profit of Rs 0.62 billion during the same period in 2016. This can be attributed to a decline of 48 per cent in revenues, from Rs 51.42 billion to Rs 26.67 billion. Finance costs increased from Rs 8.25 billion to Rs 11.49 billion.

RCOM received the green signal from the Department of Telecommuni­­ca­tions (DoT) for its merger with Sistema Shyam TeleServices Limited. However, it had to call off its merger with Aircel on account of inordinate delays owing to legal and regulatory uncertainties. Subse­q­u­ently, Canadian investment fund Brook­field Infrastructure opted out of the $200 million tower deal with RCOM’s tower arm.

RCOM has now decided to shut down its 2G and 3G services completely and con­centrate on offering 4G services as a mobile virtual network operator. It has also presented a fresh zero write-off plan to its lenders, under which banks could convert some of its debt into equity by taking a 51 per cent stake in the company. The banks could then raise funds by selling RCOM’s towers and spectrum as well as by monetising its real estate assets.

Bharti Infratel

Bharti Infratel has reported a 17 per cent decline in its net profit, which decreased from Rs 7.73 billion during the quarter ended September 2016 to Rs 6.38 billion during the corresponding quarter in 2017. The company’s total income increased by 11 per cent from Rs 329.19 billion to Rs 364.82 billion. Its EBITDA increased from Rs 145.37 billion to Rs 163.35 billion. The EBITDA margin rose from 44.2 per cent to 44.8 per cent.

The net income declined from Rs 2.47 billion to Rs 109 million during the period under consideration. Meanwhile, the company’s total expenses increased by 6.7 per cent, from Rs 8.04 billion to Rs 8.6 billion.

On the operations side, Bharti Infra­tel’s tower footprint increased from 89,791 to 90,955 between September 2016 and Sep­tember 2017. The company’s shared revenue per tower also increased by 7.6 per cent, from Rs 77,197 to Rs 83,040 on a year-on-year basis.

Bharti Infratel is exploring a mega stake acquisition in Indus Towers, which could be the largest consolidation move in the telecom tower infrastructure space. Currently, it owns 42 per cent of Indus Towers, which is among the largest wireless infrastructure companies in the world with 123,000 towers. Bharti Infratel and Indus Towers together operate 41 per cent of the total towers in the country and account for 49 per cent of co-locations.

Conclusion

As per rating agency Fitch, the IUC cut will further reduce the EBITDA of the incumbents by 3-6 per cent during 2017-18. In the short run, operator profitability will continue to be under stress, and no signs of revival are expected for at least a few quarters yet.