|Thursday, 12 January 2017 01:04|
Telco data capacity 16+ times the paid demand today
Given the extent to which RJio has changed the telecom paradigm, it is not surprising the share values of Idea Cellular has fallen 12% since September 5 when RJio launched commercial operations – Bharti Airtel’s shares also fell 9% by December 22 but have recovered since, to September 6 levels. While Bharti Airtel’s voice ARPUs have fallen from Rs 158 in September 2014 to Rs 132 in September 2016 – Rs139 to Rs 132 for Idea – a far bigger collapse is expected going ahead, more so since it is not clear whether, after extending its free services via a Happy New Year offer, RJio will not come up with a similar Happy Holi offer. Though RJio offers attractively priced data-voice packages, at the moment the service is free – apart from its high speeds, this has allowed RJio to cross 75 million subscribers already. Though Bharti Airtel has gone to Tdsat against Trai not taking any action against RJio’s offer which it says violates the law, there is no certainty as to how long the process will take.
While incumbents like Bharti Airtel and Vodafone have dropped their tariffs substantially already – in select offers, their data tariffs are lower than even RJio’s – a new analysis by Kotak Institutional Equities suggests the losses are only going to deepen. Not surprising since, as Kotak points out, RJio’s capital investment – $27-28bn already and likely to go up to $35bn – is greater than the entire industry’s current revenues of $27bn and four times the $8bn ebitda. The increased expenditure, and not just by RJio, has resulted in a situation where the existing capacity for data is already 16+ times the paid demand, up from around six times at the end of FY16 – this is expected to rise to 29 times by the end of FY18 and just shy of 40 by the end of FY19. Not surprising then, that the industry forecast is for a halving of voice revenues by 2022, from an estimated Rs 129,000 crore in FY17 to Rs 67,400 crore by FY22 – in terms of voice ARPUs, the fall will be from Rs 98 per subscriber per month to just Rs 37. And though data consumption is projected to rise more than tenfold from 2,097 bn GB to 22,111 bn GB, data realization are expected to fall from Rs 185 per GB to just Rs 72. In the optimistic case where revenues are projected to be 17% higher, not surprisingly, data realizations are expected to be even lower at Rs 70 per GB.
In such a situation where only the capacity to bleed while investing more will decide which player will survive, the government/Trai/Tdsat need to ponder over whether the existing definition of predatory pricing needs to be relooked – while the traditional definition requires the ‘predator’ to have significant market power, in sectors like retail where PE-funded deep-pocketed etailers have completely shaken up the market, the government has junked this definition in favour of a more pragmatic policy of limiting discounting by etailers. Also, with 75 million subscribers, RJio has the highest market share in the 4G market – the Competition Commission used the concept of ‘relevant market’ while ruling against DLF some years ago, will Trai now do the same?