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August 13, 2018

CRISIL Research Sector Round-up: Profits of incumbent telcos halved in 3 years

And operating margins have been culled ~1000 bps

The intense price war in telecom, which started in September 2016 with the entry of Reliance Jio (RJio), is showingno signs of abating. If anything, it has become even more brutal, and the pain is expected to continue this fiscal.


Consequently, the industry’s adjusted gross revenues (AGR; gross revenue net of interconnect charges) coulddecline another 6-8% on-year this fiscal owing to continued deterioration in realisation from data sales. However,volume growth in data, expected at ~45% (compared with a 4x jump in fiscal 2018), will limit the damage.


The corrosive effect of competition will see gross revenue of the top three incumbents – Bharti Airtel, Idea Cellularand Vodafone India – plunge 14-16% as they focus on retaining subscriber market share (based on a 45% volumegrowth in data, ~3% growth in subscribers and 18-20% drop in average revenue per user, or ARPU.)


The battle has seen the industry’s gross revenue and AGR plummet ~10% and ~20%, respectively, last fiscal.