Muted telco revenues are one side of the story, the other is more data revenues, and lower churn
Disappointing revenue and ebitda growth from both Bharti Airtel and Idea are an obvious part of India’s telecom story, though not unrelated to the overall economic growth story. The larger takeaway, over a period of a year, is that India’s telecom is slowly getting back on track. Over the quarter, ARPUs are down for Bharti Airtel and up marginally for Idea; minutes of usage, a key metric, are down both sequentially and on a yearly basis for Bharti while they are down only on an annual basis for Idea. These are the reasons why, for instance, Kotak Institutional Equities has lowered its FY15 ebitda margins for Bharti.
But the two critical parameters to look at today are ‘churn’ and ‘data usage’, and both have improved dramatically. Bharti’s monthly churn was around 6% in Q4FY13, which meant that around 72% of the telco’s customers left it each year. Not surprisingly, it had to spend as much as 9.7% of its revenues that quarter on advertising and promotions. By Q3FY14, however, this churn had fallen to 2.7%, implying that just a third of its customers were leaving it—not surprisingly, expenditure on advertising and promotions for the telco fell by 180 basis points. In the case of Idea, the churn hasn’t fallen as much—it didn’t help that Idea raised its tariffs—but even so, promotional expenditure fell 110 basis points over a year ago. The other good news, for both companies is the huge rise in data revenues, up from 5.7% of mobile revenues a year ago to 10.3% in the case of Bharti and 9.5% for Idea. India’s telecom is maturing. Now to see if telcos blow it away by bidding too aggressively in next week’s auctions.