During the April-June 2018 quarter, the incumbents continued to report a weak financial performance on the back of continuing pricing pressure, rising costs and a cut in international call termination rates.
Bharti Airtel and Vodafone India took a hit on their profitability, Vodafone India’s revenues continued to fall, and Idea Cellular’s earnings got eroded. Interestingly, Reliance Jio Infocomm Limited (RJIL) posted its third sequential profit during this quarter. Clearly, the bruising price war is yet to take a toll on RJIL’s earnings. In fact, according to CLSA, RJIL has increased its revenue market share from 20 per cent in the quarter ended March 2018 to 23 per cent in the following quarter. Despite strong competition, Jio’s ARPU witnessed only a marginal quarterly dip of 1.9 per cent. On the other hand, Airtel, the largest operator in terms of subscribers, posted a quarterly decline of 9.5 per cent in ARPU.
SIM consolidation is emerging as a key trend in the industry, which may stave off any further impact of the tariff wars. Driven by the increased penetration of unlimited offers, subscribers have started spending on a single SIM.
A look at the results posted by leading telecom players during the quarter ended June 2018…
Bharti Airtel has posted a consolidated net profit of Rs 973 million during the April-June 2018 quarter, primarily on the back of a deferred tax gain of Rs 5.16 billion. This profit, however, is 74 per cent lower than the net profit of Rs 3.67 billion reported in the quarter ended June 2017. Further, its consolidated revenues have come down by 9 per cent from Rs 219.58 billion during the quarter ended June 2017 to Rs 200.08 billion during the corresponding quarter in 2018.
For India and South Asia, the operator reported a net loss (before exceptional items) of Rs 9.8 billion in the quarter under consideration as against a profit of Rs 7.7 billion reported during the same quarter last year. Meanwhile, revenues have declined by 13 per cent from Rs 173.3 billion to Rs 150.2 billion during this period.
For its Indian operations, Airtel’s earnings before interest and taxes (EBIT) declined 79 per cent from Rs 25.3 billion during the quarter ended June 2017 to Rs 5.28 billion during the corresponding quarter in 2018. The drop in earnings could be attributed to the ongoing tariff war, higher financing costs and the cut in international termination rates. Meanwhile, revenues declined by 13 per cent from Rs 172.5 billion to Rs 149.3 billion during the same period. On the operational front, Airtel’s data customer base in the country grew by 51.5 per cent to reach 94.7 million by the end of June 2018. The total MBs on the networks have grown by over 350 per cent to reach 2,150.6 billion MB.
Airtel’s consolidated net debt stood at Rs 1,029.02 billion as of June 30, 2018.
Vodafone India’s service revenue declined by 31 per cent from Euro 1.38 billion during the quarter ended June 2017 to Euro 955 million in the corresponding quarter in 2018. The company attributes this decline to the ongoing tariff war and cuts in the interconnect usage charge for both domestic and international calls. However, this revenue decline is expected to slow down in the coming quarters with the completion of Vodafone’s merger with Idea Cellular, post which synergies should kick in. The new merged entity expects to clock $10 billion in savings over time. Vodafone will continue to focus on the 12 circles that accounted for 90 per cent of its operating income.
On the operational front, the company managed to retain several of its high-value customers, although on the back of lower ARPUs. Vodafone India has recorded its lowest-ever ARPU of Rs 102 during the reported quarter, compared with Rs 105 in the January-March 2018 quarter. That said, industry analysts believe that Vodafone India has managed to ensure good customer retention despite RJIL’s price aggression. The company has been able to hold on to its post-paid ARPU at Rs 432.
The number of data users has been rising steadily to reach 77 million at the end of June 2018. Of these, 30.9 million were 4G subscribers. The monthly data usage quadrupled to 4.6 GB per user on an average.
The sale of Idea’s tower arm, Idea Cellular Infrastructure Services Limited, to the American Tower Corporation helped the operator post a consolidated profit for the quarter ended June 2018. Its profit after tax (PAT) stood at Rs 2.56 billion during the quarter under consideration compared to a loss of Rs 8.15 billion (after tax) during the quarter ended June 2017. However, aside from the tower sale deal, the quarter turned out to be extremely weak for the operator. As per industry analysts, these are the weakest results that Idea has reported as a listed company. Its gross revenues declined by 28 per cent from Rs 81.66 billion during the quarter ended June 2017 to Rs 58.89 billion during the corresponding quarter in 2018. The decline in revenues has mainly been on account of decreasing blended ARPU, which has declined from Rs 141 to Rs 100 during the same period. Earnings before interest, taxes, depreciation and amortisation (EBITDA) declined from Rs 18.75 billion to Rs 6.6 billion, while the EBITDA margin halved from 23 per cent to 11.2 per cent. On the operational side, increasing customer churn has become a major area of concern for Idea. The company has lost more subscribers than Vodafone in the reported quarter, even as Airtel reported net additions.
The only silver lining for the operator is the growing consumption of voice and broadband data, which is being driven by unlimited bundled plans. During the quarter ended June 2018, Idea’s voice minutes stood at 349.5 billion, a growth of 39.4 per cent over the 250.7 billion minutes registered a year ago. The monthly voice consumption (per user) has risen significantly to 609 minutes from 441 minutes per month during the same period. Meanwhile, total data volumes stood at 1,018 billion MB. However, data realisations continued to decline with blended data ARMB (average revenue per MB) for the quarter under consideration at 1.1 paise per MB.
The company’s wireless broadband subscriber base stands at about 41 million, an addition of 14.6 million broadband data customers over the past one year. During the quarter, Idea completed the roll-out of voice over LTE (VoLTE) services across 20 (4G telecom) circles.
Idea Cellular’s net debt as of June 30, 2018 stood at Rs 505.8 billion.
For RJIL, this was yet another quarter of healthy financials. It continued to post strong revenue growth, along with an improvement in operating profitability during the quarter. Its stand-alone revenue from operations stood at Rs 81.09 billion, recording a growth of 13.8 per cent over the corresponding quarter in 2017. The stand-alone EBITDA stood at Rs 31.47 billion, while the EBITDA margin stood at 38.8 per cent during the quarter under consideration. Meanwhile, its stand-alone net profit stood at Rs 6.12 billion.
On the operations side, the total wireless data traffic during the quarter stood at 6.42 billion GB. Meanwhile, the total voice traffic during the quarter stood at 448.71 billion minutes. The average monthly data consumption per user stood at 10.6 GB. The company also witnessed an average video consumption of 15.4 hours per subscriber per month. ARPUs during the quarter stood at Rs 134.50, the highest in the industry.
Commenting on the results, Mukesh D. Ambani, chairman and managing director, Reliance Industries Limited, said: “We doubled our customer base and most user metrics in the last 12 months. About 215 million customers within 22 months of starting operations is a record that no technology company has been able to achieve anywhere in the world.”
There is a general consensus that once the current phase of declining tariffs subsides, the sector will chart a growth trajectory. However, that recovery is still several quarters away. Given that RJIL’s pricing policy is continuing to deliver encouraging results, it seems highly unlikely that it will increase tariffs in the near future. In fact, RJIL’s new focus on the feature phone and post-paid segments may further drive down profitability for the incumbents. According to industry analysts, the price war will continue for at least the next 12 months, by the end of which RJIL will nearly double its user base to about 400 million from the current 215 million. Stiff competition and weak ARPUs will increase the balance sheet leverage for the incumbents. Clearly, there is still a lot more struggle left before the sector’s fortunes revive. With Vodafone and Idea reaching the last leg of their merger, it would be interesting to see how the combined entity impacts operator revenue market shares in the quarters to come.
Akanksha Mahajan Marwah