The days of mad discounting are over, telcos look better
With the bulk of those who got licences cheap in 2008 put out of business by the court, and telcos realising their customer acquisition model made little sense, they have been withdrawing discounts and freebies over the past few quarters. That is beginning to pay off, and Q1 data shows revenue per minute (RPM) and ebitda have ticked up for most players. Idea’s RPM at 43.70 paise rose 6.1% qoq driving up the adjusted ebitda by 18.3% qoq while RCom managed a 4% sequential rise in RPM. At Bharti Airtel, India wireless ebitda increased a strong 12% sequentially on the back of a 4% qoq rise in RPM. Although volumes haven’t come in as expected—flat sequentially at RCom and up 2.8% at Idea—analysts have chosen not to read too much into a single metric, but to look at metrics collectively. The sharp increase in average revenues per user—up 4.2% sequentially at Idea and 3.8% sequentially at Bharti—is encouraging indicating that consumers appear to be comfortable with paying more.
This reverses a trend seen over the past four years when the fight for market share gains and spectrum hurt profits. At Bharti, robust volumes and subscriber growth failed to bring in profits since prices were under pressure and costs stayed high—absolute ebitda levels have remained more or less where they were four years back. Given the weak macro environment, however, telcos will understandably be cautious on usage trends in the coming quarters but since there’s virtually no undercutting, voice revenues should continue to flow in nicely. That’s important because the use of data remains low—sub-10% of total revenues—and is unlikely to become a meaning contributor to the top line for a few years. Given that active SIM penetration is 57% although the headline number may be 71%, the voice market still has a lot of life left in it.