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May 04, 2018

Sector Report: Telecom Services

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • Wireless
  • Wireline
  • Operating metrics
  • Revenues
  • Profitability
  • Competition
  • Regulations
  • Investments

 

Summary

 

Revenue to recover, albeit pricing pressures to remain in fiscal 2019

 

The pre-Reliance Jio era saw the industry grow at 12-13% on-year. The industry's adjusted gross revenue (AGR) is estimated to decline ~5% in fiscal 2018. Larger players, too, have been witnessing a deterioration in their financial position since last year. The AGR of the top three players declined ~24% until December 2017. In fiscal 2018, it is estimated to decline ~12%. The onslaught of cheaper voice and data tariffs as a retaliation to Jios tariffs will lead to this decline.

A reduction in the IUC by TRAI will also impact revenue, as these players are net IUC revenue gainers. However, a revival in industry growth seems likely in fiscal 2019, with a growth of ~5-7%, led by data traffic growth, a marginal increase in realisation as well as incumbents' focus on higher revenue-generating 4G subscribers.

 

2G/3G users on the wane, 4G gaining ground

 

The wireless-subscriber base has risen to ~1,162 million as of November 2017, an on-year annual jump of 62 million. However, the overall subscriber base declined 1.8% during September-November 2017, because of the discontinuation of inactive subscribers through stoppage of services by some operators.

 

Both 2G and 3G data subscribers are phasing out, while the additions to 4G subscriptions are gaining momentum. Subscribers of 4G services generate higher revenue, as they enjoy better experience, leading to relatively high data usage. Players have also announced a 4G-focussed strategy, which lends support to the growth expected in this technology. We expect 4G subscribers to reach 360 million and 785 million by fiscal 2019 and 2023, respectively, compared with ~197 million as of September 2017. Data subscribers as a percentage of total wireless subscribers is expected to reach ~41% in fiscal 2019 and ~64% by fiscal 2023, compared with 38% in fiscal 2018.