The July-September 2018 quarter continued to be dismal for the incumbent telecom operators. Barring Reliance Jio Infocomm Limited (RJIL), which registered an increase in net profits for the fourth straight quarter, other operators such as Bharti Airtel and Vodafone Idea Limited (VIL) struggled to keep their finances in order. Pricing pressures took a toll on operator margins in an already seasonally weak quarter. Meanwhile, revenues plummeted on account of the continued decline in ARPUs in the prepaid segment and accelerated repricing in the post-paid segment. Airtel’s ARPUs declined to Rs 101 while RJIL’s ARPUs dropped to Rs 131.70, the lowest since the operator commenced operation. The following are the key highlights of operators’ financial results during the quarter ended September 2018….
RJIL managed to steer clear of competitive pressures during the quarter ended September 2018. It turned out to be the fourth straight profitable quarter for the operator, with it posting a stand-alone net profit of Rs 6.81 billion against a net loss of Rs 2.71 billion during the corresponding quarter in 2017. Further, RJIL’s stand-alone revenue from operations increased by 50.28 per cent, from Rs 61.47 billion during the quarter ended September 2017 to Rs 92.41 billion during the corresponding quarter in 2018. This could be attributed to an increase in subscriber numbers, which was partly owing to the introduction of a new version of the JioPhone. The operator’s stand-alone earnings before interest, taxes, depreciation and amortisation (EBITDA) stood at Rs 35.73 billion, while the EBITDA margin was reported at 38.7 per cent during the same quarter. However, the increase in subscribers led to a decline in the operator’s ARPUs for the fourth consecutive quarter to Rs 131.70. Meanwhile, RJIL’s expenditure increased from Rs 65.63 billion during the quarter ended September 2017 to Rs 81.95 billion in the same quarter of 2018.
On the operations side, the total wireless data consumption during the quarter stood at a record level of 7.71 billion GB and the average monthly data consumption per user stood at 11 GB. Further, the company recorded a total voice traffic of 533.79 billion minutes and an average voice consumption of 761 minutes per user per month. Its subscriber base stood at 252.3 million.
Bharti Airtel posted a consolidated net profit of Rs 1.18 billion on the back of a one-time deferred tax gain of about Rs 26.33 billion during the quarter ended September 2018. However, the profit was significantly lower than the Rs 3.43 billion profit registered during the corresponding quarter in 2017, marking a 65.36 per cent decline. During the same period, the company’s consolidated revenue fell by 6.21 per cent, from Rs 217.76 billion to Rs 204.22 on account of sustained pricing pressure in the mobile segment.
For its Indian operations, the company registered a 10.85 per cent fall in its consolidated net revenue, from Rs 167.36 billion to Rs 149.19 billion on the back of a drop in mobile revenues. Moreover, Airtel’s EBITDA declined by 32.86 per cent from Rs 63.27 billion to Rs 42.51 billion during the same period. The company’s ARPUs declined from Rs 142 to Rs 101.
On the operations side, the data usage per customer stood at 9.22 billion MBs during the reporting quarter. Mobile data traffic grew by 223.2 per cent to 2,758 billion MBs as compared to 853 billion MBs in the quarter-ended September 2017. The total voice traffic during the quarter stood at 693.06 billion minutes.
Meanwhile, Airtel’s Africa business continued to do well, driving overall growth. Airtel Africa witnessed a steady improvement in its top and bottom lines owing to a growth in its data and mobile money businesses, supported by strict cost control. On a constant currency basis, the company’s Africa revenues grew by 10.9 per cent year on year to $824 million. Further, the EBITDA growth stood at 24 per cent year on year and EBITDA margins were at a high of 37.1 per cent, as on September 30, 2018. In a major boost to operations, Airtel Africa Limited recently completed the pre-initial public offering (IPO) placement of shares to six leading global investors, including Warburg Pincus, Temasek, SingTel and SoftBank Group International, and raised $1.25 billion. These proceeds will be used for deleveraging its balance sheet and expanding operations.
After the successful completion of the Vodafone-Idea merger in August 2018, the merged entity, VIL, reported its first-ever financial results. These include results for Idea Cellular up to August 31, 2018 and for VIL from August 31, 2018 to September 30, 2018, and hence, are not comparable to the earlier periods.
According to the results, VIL registered a loss of Rs 49.73 billion during the quarter ended September 2018. On a quarter-on-quarter basis, it posted a 7.1 per cent decline in total revenue, from Rs 129.44 billion during the quarter ended June 2018 to Rs 120.23 billion during the quarter ended September 2018. The company attributes this to customer migration towards lower-ARPU offerings and a loss of 13 million customers during this period. Moreover, VIL’s capex increased by 30.7 per cent on a quarter-on-quarter basis, from Rs 25.21 billion to Rs 32.95 billion. The EBITDA declined by 28.7 per cent from Rs 13.72 billion to Rs 9.78 billion, mainly due to continued revenue pressure.
On the operations front, VIL reported a 4.7 per cent quarter-on-quarter decline in ARPU from Rs 92 to Rs 88. Data volumes expanded to 2,260 petabyte as of September 30, 2018, with the usage per customer increasing to 5.6 GB per month from 5 GB in the previous quarter. The operator’s overall subscriber base stood at 422 million during the reporting quarter.
VIL intends to raise up to Rs 250 billion of new equity capital. To this end, the company’s board of directors has formed a committee to evaluate the potential of raising this capital.
Declining revenues and profitability have crippled operators’ ability to undertake major network investments. According to industry reports, the current spending in India’s telecom sector stands at approximately 0.7 per cent of GDP, which is amongst the lowest in the world. Given that RJIL’s aggressive pricing policy continues to deliver encouraging results, financial recovery is still a few quarters away.
Despite a disappointing financial performance, there is a general consensus that the sector is set for a future growth trajectory, once the current phase of declining tariffs subsides. Meanwhile, the exponential growth in data consumption has emerged as a silver lining for operators. This, coupled with structural repair of the industry to a three-plus-one operator scenario bodes well for long-term growth. With VIL planning an equity placement and Airtel Africa raising funds from six global investors, it is evident that operators are optimistic about the long-term market outlook.
The ARPU trajectory is also expected to improve in the coming quarters. According to analysts, with the launch of minimum ARPU plans across the country, prepaid ARPUs are expected to witness an uptick. However, post-paid ARPUs may remain under pressure for a couple of quarters.
The National Digital Communications Policy (NDCP), 2018 is expected to usher in a new era of growth for the telecom sector. The successful implementation of the NDCP is expected to bring financial relief to operators’ bleeding balance sheets and provide some financial stability to the sector.