During the quarter ended December 2015, the majority of the top telecom operators demonstrated a similar trend in their financial performance. Most of them reported higher revenues owing to a surge in data usage, particularly in 3G. Meanwhile, the voice segment continued on its downward trajectory, with operators reporting low voice realisations during the quarter.
tele.net takes a look at the performance of Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications (RCOM) during the quarter ended December 2015…
Bharti Airtel
Bharti Airtel reported lower-than-expected earnings for the quarter ended December 2015. The operator’s net profits declined by 22.21 per cent, from Rs 14.36 billion in the quarter ended December 2014 to Rs 11.17 billion in the quarter ended December 2015. This is attributed to a 32.8 per cent increase in net finance costs, from Rs 10.52 billion to Rs 13.97 billion during the same period. However, Airtel’s total revenues registered a growth of 3.77 per cent from Rs 232.28 billion to Rs 241.03 billion. This resulted in an increase in the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin from 33.7 per cent to 35.2 per cent. In terms of revenue mix, its operations in India and South Asia accounted for around 75 per cent of the total revenues and the remaining was contributed by its African business.
As far as its Indian operations are concerned, Airtel reported a 9 per cent year-on-year revenue growth, from Rs 162.56 billion in October-December 2014 to Rs 176.94 billion in October-December 2015. Meanwhile, the operator’s subscriber base in the country increased by 12 per cent, from 217.22 million to 243.29 million. However, its total ARPU declined by 4.95 per cent from Rs 202 to Rs 192. This was due to a drop of 12.74 per cent in voice ARPUs from Rs 157 to Rs 137 on account of a decline in the voice realisation per minute from Re 0.38 to Re 0.34. In contrast, data ARPUs increased by 17.7 per cent from Rs 170 during the quarter ended December 2014 to Rs 200 during the corresponding quarter in 2015. This can be attributed to an increase of 73.3 per cent in the total data traffic on the operator’s network from 77.28 billion MB to 133.95 billion MB during the same period, and an increase in data usage per subscriber from 622 MB to 843 MB. Further, the operator’s 3G subscriber base grew by 65.82 per cent from 16.94 million to 28.09 million. In order to cater to this growing demand for data services, Airtel expanded its 3G sites from 41,850 as of end-December 2014 to 77,551 as of end-December 2015.
Meanwhile, the net loss from Airtel’s African operations declined from Rs 8.36 billion in October-December 2014 to Rs 4.87 billion in October-December 2015 as a result of a decline in operating expenses from Rs 38.64 billion to Rs 35.65 billion during the same period. On the downside, the operator’s revenues declined from
Rs 68.27 billion to Rs 62.51 billion, which resulted in a decrease in EBITDA from Rs 14.95 billion to Rs 13.28 billion. The total ARPUs also decreased from $4.6 to $4.2, owing to a decline in voice ARPUs from $3.5 to $3. On the other hand, data ARPUs increased from $3.2 to $3.3 as a result of the increase in data usage per customer from 290 MB to 453 MB. Meanwhile, the total data subscriber base increased from 11.24 million to 15.41 million while the total data traffic on the network grew from 9.48 billion MB to 20.05 billion MB.
Although Airtel’s performance was underwhelming in the quarter ended December 2015, the future outlook looks promising for the operator given its pan-Indian presence, loyal customer base and encouraging steps taken to maintain its leadership position. The operator has launched a large-scale network transformation programme, “Project Leap”, to improve network quality and customer experience. Over the next three years, this strategic project will see an investment of Rs 600 billion and the deployment of over 160,000 base transceiver stations, effectively doubling its presence. Further, the acquisition of considerable spectrum across various frequency bands will enable it to fill coverage gaps and expand its voice and data services to newer cities and towns.
Vodafone India
Vodafone India reported a marginal increase of 0.46 per cent in its year-on-year service revenues during the quarter ended December 2015. The operator’s revenues grew from £1,098 million in the quarter ended December 2014 to £1,103 million in the quarter ended December 2015. The increase in revenues was primarily due to the growth in its customer base, minutes of usage (MoUs) and data traffic.
Vodafone’s mobile subscriber base increased by 8.36 per cent from 178.67 million in October-December 2014 to 193.6 million in the corresponding period in 2015. The total MoUs on the operator’s network increased by 7.46 per cent from 168.62 billion to 181.2 billion during the same period, while data usage increased from 51,889 TB to 85,231 TB. Meanwhile, the operator’s ARPU fell by 7.41 per cent from Rs 189 to Rs 175.
Vodafone has launched its 4G services in the country. It is also aggressively ramping up its 3G and 4G networks to meet the growing demand for data services. Moreover, the company has ventured into several other segments to diversify its growth avenues, with Vodafone Business Services, the operator’s enterprise business unit, aiming to double revenues in the next four years. Overall, the long-term outlook for Vodafone remains strong given that it has established itself as the second largest operator in the country.
Idea Cellular
Idea Cellular reported a marginal decline of around 0.4 per cent in its net profit, which decreased from Rs 7.67 billion in the quarter ended December 2014 to Rs 7.64 billion during the quarter ended December 2015. This was mainly on account of an 11.22 per cent increase in the company’s expenditure from Rs 67.47 billion to Rs 75.04 billion during the same period. Further, the company’s interest and finance costs rose from Rs 983 million to Rs 3.35 billion.
On the other hand, its revenues grew by 12.37 per cent from Rs 80.17 billion during October-December 2014 to Rs 90.09 billion during the corresponding period in 2015. Higher revenues resulted in an increase of around 13.7 per cent in EBITDA, from Rs 27.53 billion to Rs 31.29 billion, while the EBITDA margin improved by 0.4 percentage points, from 34.3 per cent to 34.7 per cent. The operator’s subscriber base grew by 14.22 per cent, from 150.5 million during the quarter ended December 2014 to 171.9 million during the corresponding quarter in 2015.
The share of data services in overall service revenues increased from 15.7 per cent in the quarter ended December 2014 to 20.2 per cent in the quarter ended December 2015. This can be attributed to a 75.78 per cent increase in the total data traffic on the operator’s network from 46.07 billion MB to 80.99 billion MB during the same period, and an increase in data usage per subscriber from 470 MB to 653 MB. While its data ARPUs increased from Rs 126 to Rs 145, voice ARPUs decreased from Rs 138 to Rs 125 owing to a decline in voice realisations from Re 0.36 to Re 0.32. The total ARPU also declined from Rs 179 to Rs 176.
In the near term, Idea Cellular is poised for steady growth as its data services drive up revenues further. The operator has advanced its 4G service launch. It has rolled out these services across eight circles and plans to cover 750 towns by June 2016. Idea has also recently bought Videocon Telecom’s spectrum in the 1800 MHz band in the Gujarat and Uttar Pradesh (West) circles, which will help it to further expand its 4G footprint in the country. It has increased its capex for 2016 to Rs 75 billion (excluding spectrum-related payment) for the deployment of 4G services.
Going forward, a significant increase in data revenues will provide operators an opportunity to improve profitability. On the downside, they are likely to incur considerable expenses, including a large capex on acquiring spectrum in the next auction.
RCOM
RCOM posted a decline of 14.93 per cent in its net profits, from Rs 2.01 billion during the quarter ended December 2014 to Rs 1.71 billion during the corresponding quarter in December 2015. This was mainly due to a decline of 3.13 per cent in the company’s revenues, from Rs 54.69 billion to Rs 52.98 billion during the same period. Meanwhile, the operator’s finance costs increased from Rs 6.52 billion to Rs 6.81 billion, and its EBITDA margin improved by 0.2 percentage points, from 33.8 per cent to 34 per cent.
During the quarter ended December 2015, RCOM’s Indian operations contributed 81 per cent to the company’s overall revenue although its revenue from Indian operations fell from Rs 47.99 billion during the quarter ended December 2014 to Rs 46.51 billion during the corresponding quarter in 2015. This resulted in a 7.57 per cent decline in profit before tax, from Rs 8.71 billion to Rs 8.05 billion.
On the operational front, the operator’s total ARPUs remained constant at Rs 142 during the period. However, its voice ARPUs registered a decline of 3.74 per cent from Rs 107 for the quarter ended December 2014 to Rs 103 for the quarter ended December 2015, on account of a dip in average voice realisations from Re 0.34 to Re 0.33. Meanwhile, the total MoUs on the network declined from 103.4 billion to 100.4 billion.
RCOM’s overall data subscriber base increased by 23.57 per cent, from 31.4 million as of end-December 2014 to 38.8 million as of end-December 2015, while its 3G subscriber base increased by 38.32 per cent, from 16.7 million to 23.1 million. This resulted in an increase in data traffic on the operator’s network from 76,434 million MB to 103,180 million MB. As of December 2015, RCOM had a network of 76,194 sites, which included 11,995 3G sites. Meanwhile, around 40,000 sites provide additional coverage to the operator’s consumers through intra-circle roaming arrangements with other operators.
In November 2015, RCOM concluded the deal to buy Russian conglomerate Sistema JSFC’s Indian mobile telephony business Sistema Shyam TeleServices Limited (SSTL). The merged entity will have a strong standing in India, with a total subscriber base of 120 million. Further, RCOM will be able to use SSTL’s 800-850 MHz spectrum to provide better 4G services. Going forward, RCOM is expected to aggressively pursue inorganic growth, with the operator reportedly looking at a three-way merger with Aircel and SSTL. RCOM has also signed a spectrum sharing and trading agreement with Reliance Jio Infocomm Limited (RJIL), which will further strengthen its position in the 4G space. RCOM, however, will have to reduce its debt so that it can make further investments in next-generation networks.
Future outlook
During October-December 2015, the telecom industry witnessed sluggish growth in terms of margins. Going forward, a significant increase in data revenues will provide operators an opportunity to improve profitability. On the downside, operators are likely to incur considerable expenses. This includes a large capex for acquiring spectrum in the next round of auctions and expanding their 4G footprint in the country. Further, the entry of RJIL, which is expected to price its services aggressively, will increase competition in the telecom market. This could further impact the earnings of operators.
Puneet Kumar Arora
