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July 01, 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 unlikely to recover, pricing pressures to remain in fiscal 2019

 

The pre-Reliance Jio era saw the industry grow at 12-13% on-year from fiscals 2014 to 2016. Post a ~17% decline in fiscal 2018, CRISIL Research expects the industry's adjusted gross revenue (AGR) to decline further by 8-10% in fiscal 2019.

 

However, we expect the gross revenues (GR) of the top three players (Bharti Airtel, Idea Cellular, and Vodafone India), to decline by 14-16% during the fiscal. The onslaught of cheaper voice and data tariffs will lead to this decline as incumbentsfocus on retaining subscriber market share by matching the cut-down in pricing of the new entrant. Key monitorable to the revenue calls remains pricing of newer packs especially in the postpaid segment that accounts for 5-6% of the wirelesssubscribers.

 

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

 

The wireless-subscriber base has risen marginally to ~1,183 million in fiscal 2018, an on-year jump of 13 million. CRISIL Research believes only 80-85% of the subscribers the smaller players lost migrated to the larger players. The balance15-20% moved out of the industry; most of them are believed to be dual SIM users in urban areas, who switched to using only their primary SIM card.

 

We expect the wireless subscriber base to reach 1,195-1,200 million in fiscal 2019. The net addition is expected to be slower during fiscals 2019 and 2020 owing to the likely decline in the subscriber base for Vodafone-Idea post the merger.However, the decline will be offset by a net addition by other incumbents and the new entrant, given their focus on increasing the subscriber market share.

 

We expect the number of 3G and 2G subscribers (combined) to fall from ~152 million in fiscal 2018 to ~98 million in fiscal 2019, as players are focusing on high revenue generators, i.e., 4G subscribers. Their number will likely reach ~360million from 287 million in fiscal 2018. The migration can be attributed to the telecom operators' 4G schemes that offer better data packs, network availability, data speed and others, to customers, besides the increasing affordability of 4Gsmartphones. Further, leading players like Airtel have announced shut down of their 3G business and refarming the linked spectrum for 4G by next three to four years. Data subscribers as a percentage of total wireless subscribers are expected toreach ~38% in fiscal 2019 and ~75% by fiscal 2024, compared with 37% in fiscal 2018.