Even though I am writing this report taking Bharti Airtel's Wireless India business numbers into consideration, the situation is more-or-less similar for most of the existing large telecom operators in the country.
Bharti Airtel is India's largest Wireless operator by quite some margin. The company is not restricted only to India, but the company's Wireless India business contributes nearly 60% of the company's Total Income and a higher proportion of it's consolidated profits. At the end of Dec'15, Bharti Airtel's India mobile customer base stood at a whopping 243.3 million, which is probably larger than the total population of many of the other countries that Bharti Airtel offers it's services in. The customer base has been growing consistently at a healthy pace. In the last 4 quarters alone, Bharti Airtel's India base has grown by 12-13%, which is very healthy considering it's size of operations.
In the chart alongside, the Orange portion represents the 3G Data Customer base, while the blue portion represents the remaining customer base, which will include a small portion of 2G Data customer base. But these customers will be primarily Voice Customers for Bharti Airtel. On the other hand, the 3G Data Customers will be generating both Data as well as some bit of Voice Revenues. Purely in Number terms, Bharti Airtel's Voice Customers have increased from 195 million in Mar'14 to 215 million in Dec'15, i.e. an increase of 20 million in the last 7 quarters. During the same period, the company's 3G Data Customers increased from 10 million to 28 million, i.e. an increase of 18 million customers. Hence in pure number terms, both segments have seen near similar increase over the last 7 quarters.
But here is the interesting part. On one hand Bharti Airtel's Quarterly Data Revenues have shot up over 130% over the last 7 quarters to hit a figure of over Rs.3150 crores in Dec'15, but on the other hand the Non-Data Revenues number has remained around the same level during all these quarters. In fact the Non-Data Revenues number is even threatening to start posting negative Y-o-Y growth now. That means whatever Voice customers the company is adding in the recent quarters, is being nullified by drop in Average Voice Revenues from each customer. While on the Data Revenues front, the Volume of GBs consumed is growing faster than growth in Revenues, primarily because the competitive pressures are gradually bringing down the Rate per MB being charged by operators.
Why the Triple Whammy? -
As we have seen above, the healthy growth in subscriber base is not leading to any growth in Airtel's Voice Revenues, even though there has not been any increase in the number of players in the recent quarters. That means the Voice usage market is around the Saturation mark currently & we may not see any industry-wide growth in this segment for a substantial period of time.
Coming to the Wireless Data business, even though the Revenues are showing healthy Q-o-Q growth currently on the back of even stronger growth in usage, the consistent fall in average Rate per MB clearly suggests that competitive pressures are increasing within the existing 3G/4G operators. And we will be witnessing the entry of Goliath in this very market by the end of this quarter or some time in the next quarter. This new competitor will not just pull some portion of the high-yielding customer base from the existing operators, which could directly result in some bit of drop in Data usage volumes for all existing players, but also force everyone to bring down the Average Rate per MB charged further down by another 30-50% easily. This will certainly pull down the growth momentum in the Data Revenues of almost all existing operators for the initial few quarters, before things start stabilising.
In the above two points, the focus was on Topline growth, which is expected to come under severe pressure once the large new competitor starts to offer it's services on a commercial basis. But there is a third very significant factor which will but pressure on the Bottomlines of all the existing operators, and that is the CAPEX. All existing leading operators are rapidly investing in installing 4G network infrastructure across all their important markets. Bharti Airtel is clearly the leader here with the widest 4G network in commercial operation in India. But things will change once the new competitor comes in with a 4G network coverage that will be match the 2G+3G+4G coverage of almost all existing operators. Hence Bharti Airtel will have to continue spending on CAPEX to extend it's 4G coverage to more & more areas and also acquire 4G capable spectrum in the coming auctions or from other smaller players, for the circles where it currently doesn't have any. While 4G becomes more & more popular in the coming few years, we could see the 2G & 3G infrastructure becoming more & more obsolete and it's usage dropping after the initial few quarters. Some of these operators might be forced to write down on the CAPEX they had incurred on expanding their 2G & 3G networks, if the usage drops to unviable levels.
Summary: The next few quarters are going to be extremely testing times for Bharti Airtel as well as all other existing operators. We will certainly see some of the smaller operators perish during this phase. We will also see attempts to consolidate amongst some of the operators in an effort to try & remain relevant. The business fundamentals of all existing operators are going to worsen substantially over the next few quarters, once RelJio starts operations. We could see stability coming in sometime in the middle of 2017, by when things will be clear about the competitive landscape. All these things will continue to exert pressure on the stock prices of Bharti Airtel, Idea Cellular and few of the other listed players. Their share prices are already down about 25-40% from their peaks, but they could very well go down by a similar percentage in the coming months as their business fundamentals come under pressure. Be ready for further rough ride.
Bharti Airtel is India's largest Wireless operator by quite some margin. The company is not restricted only to India, but the company's Wireless India business contributes nearly 60% of the company's Total Income and a higher proportion of it's consolidated profits. At the end of Dec'15, Bharti Airtel's India mobile customer base stood at a whopping 243.3 million, which is probably larger than the total population of many of the other countries that Bharti Airtel offers it's services in. The customer base has been growing consistently at a healthy pace. In the last 4 quarters alone, Bharti Airtel's India base has grown by 12-13%, which is very healthy considering it's size of operations.
Why the Triple Whammy? -
As we have seen above, the healthy growth in subscriber base is not leading to any growth in Airtel's Voice Revenues, even though there has not been any increase in the number of players in the recent quarters. That means the Voice usage market is around the Saturation mark currently & we may not see any industry-wide growth in this segment for a substantial period of time.
Coming to the Wireless Data business, even though the Revenues are showing healthy Q-o-Q growth currently on the back of even stronger growth in usage, the consistent fall in average Rate per MB clearly suggests that competitive pressures are increasing within the existing 3G/4G operators. And we will be witnessing the entry of Goliath in this very market by the end of this quarter or some time in the next quarter. This new competitor will not just pull some portion of the high-yielding customer base from the existing operators, which could directly result in some bit of drop in Data usage volumes for all existing players, but also force everyone to bring down the Average Rate per MB charged further down by another 30-50% easily. This will certainly pull down the growth momentum in the Data Revenues of almost all existing operators for the initial few quarters, before things start stabilising.
In the above two points, the focus was on Topline growth, which is expected to come under severe pressure once the large new competitor starts to offer it's services on a commercial basis. But there is a third very significant factor which will but pressure on the Bottomlines of all the existing operators, and that is the CAPEX. All existing leading operators are rapidly investing in installing 4G network infrastructure across all their important markets. Bharti Airtel is clearly the leader here with the widest 4G network in commercial operation in India. But things will change once the new competitor comes in with a 4G network coverage that will be match the 2G+3G+4G coverage of almost all existing operators. Hence Bharti Airtel will have to continue spending on CAPEX to extend it's 4G coverage to more & more areas and also acquire 4G capable spectrum in the coming auctions or from other smaller players, for the circles where it currently doesn't have any. While 4G becomes more & more popular in the coming few years, we could see the 2G & 3G infrastructure becoming more & more obsolete and it's usage dropping after the initial few quarters. Some of these operators might be forced to write down on the CAPEX they had incurred on expanding their 2G & 3G networks, if the usage drops to unviable levels.
Summary: The next few quarters are going to be extremely testing times for Bharti Airtel as well as all other existing operators. We will certainly see some of the smaller operators perish during this phase. We will also see attempts to consolidate amongst some of the operators in an effort to try & remain relevant. The business fundamentals of all existing operators are going to worsen substantially over the next few quarters, once RelJio starts operations. We could see stability coming in sometime in the middle of 2017, by when things will be clear about the competitive landscape. All these things will continue to exert pressure on the stock prices of Bharti Airtel, Idea Cellular and few of the other listed players. Their share prices are already down about 25-40% from their peaks, but they could very well go down by a similar percentage in the coming months as their business fundamentals come under pressure. Be ready for further rough ride.
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