The Q2 of FY'17, i.e. the period July to September'2016, will be the start of a new Telecom story. And all of us know why, isn't it? Yes. It is the start of Reliance Jio becoming available to a much wider population from sometime around the end of August'16, when Jio Preview Offer was opened to a huge list of 4G smartphones. Soon after that, on 5th September, Jio was made open to the public with it's Welcome Offer, which offered everything from Data, Voice calls, SMS & access to Jio Apps, FREE till 31st December'16. This lead to a mad rush to acquire a Jio Sim by millions of 4G Smartphone users. This migration of usage (atleast temporarily) from one of the existing operators to Jio by a few million users, starting from the month of September, was definitely going to affect the Revenues of all existing operators. Ofcourse, the impact was expected to be small in Q2 as Jio started activating Sim cards at a rapid pace only in the last month of the quarter. In one of my previous posts I had mentioned that I was expecting a 3 to 5% erosion of Industry's Gross Revenues in Q2 and a bigger hit of 10 to 15% in Q3. Now that we have Adjusted Gross Revenue (AGR) numbers for Q2-FY'17, let's see how the industry has fared.
For my analysis, I have been keeping a track of AGR numbers for all 22 circles of 9 Telecom operators: Airtel, Vodafone, Idea, Tata, Aircel, BSNL/MTNL, RCom, Telenor & Jio. As of now Jio's numbers are close to Zero (insignificant). The other 8 operators comprise of nearly 98% of the Industry's Total Revenues. The Total AGR for these 9 operators across all 22 circles was Rs.40,097 crores in Q1-FY'17, which has dropped by 3.3% to Rs.38,764 crores in Q2-FY'17. This was very much on expected lines. It is interesting to see how the different operators and circles
have performed Q-o-Q. After collating all the numbers, I was slightly surprised to note that impact of Jio's Welcome Offer is the least in the Metro Circles and the maximum in the C-Category Circles.[The AGR number for Metro Circles in March'16 quarter looks unusually taller mainly because of abnormal numbers from MTNL during that quarter.] On a Q-o-Q comparison, AGR for Metro Circles is down by just 1.1%, for A-Category Circles it is down by 2.3%, for B-Category Circles it is down by 3.9% and for C-Category Circles it is down by a whopping 8.2%. What does this indicate? Does this mean that Jio did not attract a decent subscriber base in Metro & A-Category Circles? I certainly don't think that is the case. The thing is that Metro & A-Category circles were expected to be the early adopters of 4G service. Hence the incumbent operators were more focused on protecting their Revenues & Customer base in these circles from migrating to Jio. Hence the Top-3 operators, i.e. Airtel, Vodafone & Idea, invested substantial Capital to aggressively expand their 4G/3G coverage in these circles and also in Urban areas of B & C-Category Circles. All the existing operators also made rapid changes to their 3G/4G Data packs and also came out with more & more attractive Special Offers for their Data consumers, in an attempt to keep a user tied to their network. And the incumbent operators certainly seem to have done an excellent job.
The other factor that might have helped here is the higher proportion of postpaid user base in Metro & A-Category circles. Most of the Postpaid users did not migrate to Jio during this Welcome Offer period as they wanted to check Jio's quality of service before jumping ship. At the same time the incumbent operators offered these postpaid users more & more Voice minutes or Data Limits within their existing plans, making it more attractive to remain with a proven operator. In case of Pre-paid users, there is no monthly commitment and hence they can easily alter their Recharge/STV choices & frequencies depending on requirement/offers. Another point being availability of Jio's 4G network across 18,000 cities & towns and over 2 lakh villages, spread across all 22 circles. On the other hand, only Airtel, Vodafone & Idea had their 4G networks operational, that too in select cities & towns, possibly more focused on areas where they knew there is a higher proportion of 4G Smartphone presence. The period between September'16 to June'17 could see the maximum pace of rollout of 4G sites by the Top-3 operators. They will also rapidly deploy the recently acquired 4G-capable spectrum in several new circles in the coming months, in an attempt to try & bridge the huge gap between Jio's 4G coverage and that of their own.
Operatorwise Categorywise Performance: It is even more interesting to see how different operators have fared in different categories. In
the Metro Category, Airtel surprisingly managed to post a 1.2% growth in AGR. Metro is one of the only 2 Category of Circles where Airtel does not hold the No.1 Rank, but it has now significantly closed the gap to Vodafone. Airtel could possibly wrest the No.1 Rank here in Q3-FY'17. MTNL is the only other operator to report Q-o-Q growth, but it's quarterly numbers recently have been quite volatile. All other operators have reported a Q-o-Q drop with RCom being the worst with 9% erosion in AGR. In Category-A Circles, BSNL was the only one to report growth with 1.7% Q-o-Q increase in AGR, but here again it can be dismissed to quarterly volatility. Amongst the other operators, the best performer surprisingly was Tata Tele with just 0.2% drop. It's 3G operations in most of the Category-A circles seems to have managed to keep it's customers tied to it's network. Idea was a big loser from the Top-3 with nearly 5% erosion in AGR. The worst performers were Telenor & RCom with 21% and 14% Q-o-Q drops in AGR.
Category-B & C Circles are where each of the Top-3 operators too have taken a considerable hit. BSNL is again the best performer in both these Categories, with 10.2% Growth in Category-B and a small drop of 2.2% in Category-C Circles. Category-B is the other segment where Airtel was trailing someone in AGR market share. With the No.1 player Idea reporting a bigger drop in AGR this quarter, Airtel is now almost on-par with it. The worst performers in Category-B Circles were again Telenor & RCom with 13% & 10% drops respectively. The same in Category-C Circles were RCom, Telenor & Idea with 32%, 16% & 14% drops respectively. Airtel which is the dominant player in the Category-C Circles with nearly 48% market share, also experienced a substantial 8.8% drop in AGR during Q2-FY'17. This is also the only Category where Airtel has reported a small drop in AGR market share by 30 bps. In all the other 3 categories, Airtel has either increased it's market share or managed to increase it with a clear outperformance.
On an overall basis, Telenor has taken the biggest percentage hit with near 17% Q-o-Q drop in AGR, followed by RCom with near 13% drop. Aircel's numbers are not exactly comparable here as I had to make some adjustments to reported numbers as it included the revenues from Spectrum trading in 7 circles. Even though BSNL/MTNL combine reported a 4.9% Q-o-Q increase in AGR, the Total AGR for the company was lower than each of the 5 quarters prior to Q1-FY'17. Hence we need to take BSNL/MTNL's Q2 numbers with a pinch of salt. Tata Tele was the surprise package here as it has managed to face the Jio storm pretty well in Q2-FY'17 with a small 3.4% Q-o-Q drop in AGR. This is despite the fact that Tata Tele has Zero 4G presence and 3G operations in only 8 circles. The credit for the good performance clearly goes to Tata Tele's operations in Category-B circles, which contributes nearly 48% to the company's Total AGR, where it reported a negligible 0.2% drop. Amongst the Top-3 operators, Idea Cellular is the one to take a significant hit with it's AGR dropping by nearly 6.2% Q-o-Q. The 2 most important circles for Idea Cellular were Rest of Maharashtra and Madhya Pradesh, which together contribute around 28% of the company's Total AGR. Idea Cellular's AGR in these 2 crucial circles reported a Q-o-Q drop of 8.5% during Q2-FY'17. The No.1 & No.2 operators, Airtel & Vodafone, proved to be the most resilient to Jio's onslaught in Q2-FY'17 with a small 2.8% Q-o-Q drop in AGR.
Now all eyes will be on 3 things: 1) How does Jio's QoS (Quality of Service) progress during the Welcome Offer Period. 2) Whether Jio announces new tariff plans or Offers in December. 3) How well do Airtel, Vodafone & Idea make use of their existing or recently acquired spectrum resources in the coming 6 months in trying to combat Jio as well as each other. Jio was facing substantial Call-connectivity issues with other operators throughout September & October. But over the recent couple of weeks, the issues seem to have been considerably resolved as most users are reporting Call-connectivity within just 1 attempt. Now Jio needs to focus on improving the experience with Data service, which had taken a beating due to the huge traffic being generated from the millions of customers it added during the last 2-odd months. Some reports suggest that Jio is rolling out LTE-Advanced (Carrier Aggregation) technology on a PAN-India basis, which should help the operator in better utilising it's Spectrum resources and improve the overall Data through-puts for most users. Let's wait & watch on how successful the operator is in completing this task well before the Welcome Offer period ends. Reliance Jio can expect to see a major portion of it's Welcome Offer user base to upgrade to being Paid-users only if the operator is able to offer decent QoS both on Voice Calls as well as Data service atleast for the last 2 weeks of the Welcome Offer period.
For my analysis, I have been keeping a track of AGR numbers for all 22 circles of 9 Telecom operators: Airtel, Vodafone, Idea, Tata, Aircel, BSNL/MTNL, RCom, Telenor & Jio. As of now Jio's numbers are close to Zero (insignificant). The other 8 operators comprise of nearly 98% of the Industry's Total Revenues. The Total AGR for these 9 operators across all 22 circles was Rs.40,097 crores in Q1-FY'17, which has dropped by 3.3% to Rs.38,764 crores in Q2-FY'17. This was very much on expected lines. It is interesting to see how the different operators and circles
The other factor that might have helped here is the higher proportion of postpaid user base in Metro & A-Category circles. Most of the Postpaid users did not migrate to Jio during this Welcome Offer period as they wanted to check Jio's quality of service before jumping ship. At the same time the incumbent operators offered these postpaid users more & more Voice minutes or Data Limits within their existing plans, making it more attractive to remain with a proven operator. In case of Pre-paid users, there is no monthly commitment and hence they can easily alter their Recharge/STV choices & frequencies depending on requirement/offers. Another point being availability of Jio's 4G network across 18,000 cities & towns and over 2 lakh villages, spread across all 22 circles. On the other hand, only Airtel, Vodafone & Idea had their 4G networks operational, that too in select cities & towns, possibly more focused on areas where they knew there is a higher proportion of 4G Smartphone presence. The period between September'16 to June'17 could see the maximum pace of rollout of 4G sites by the Top-3 operators. They will also rapidly deploy the recently acquired 4G-capable spectrum in several new circles in the coming months, in an attempt to try & bridge the huge gap between Jio's 4G coverage and that of their own.
Operatorwise Categorywise Performance: It is even more interesting to see how different operators have fared in different categories. In
On an overall basis, Telenor has taken the biggest percentage hit with near 17% Q-o-Q drop in AGR, followed by RCom with near 13% drop. Aircel's numbers are not exactly comparable here as I had to make some adjustments to reported numbers as it included the revenues from Spectrum trading in 7 circles. Even though BSNL/MTNL combine reported a 4.9% Q-o-Q increase in AGR, the Total AGR for the company was lower than each of the 5 quarters prior to Q1-FY'17. Hence we need to take BSNL/MTNL's Q2 numbers with a pinch of salt. Tata Tele was the surprise package here as it has managed to face the Jio storm pretty well in Q2-FY'17 with a small 3.4% Q-o-Q drop in AGR. This is despite the fact that Tata Tele has Zero 4G presence and 3G operations in only 8 circles. The credit for the good performance clearly goes to Tata Tele's operations in Category-B circles, which contributes nearly 48% to the company's Total AGR, where it reported a negligible 0.2% drop. Amongst the Top-3 operators, Idea Cellular is the one to take a significant hit with it's AGR dropping by nearly 6.2% Q-o-Q. The 2 most important circles for Idea Cellular were Rest of Maharashtra and Madhya Pradesh, which together contribute around 28% of the company's Total AGR. Idea Cellular's AGR in these 2 crucial circles reported a Q-o-Q drop of 8.5% during Q2-FY'17. The No.1 & No.2 operators, Airtel & Vodafone, proved to be the most resilient to Jio's onslaught in Q2-FY'17 with a small 2.8% Q-o-Q drop in AGR.
Now all eyes will be on 3 things: 1) How does Jio's QoS (Quality of Service) progress during the Welcome Offer Period. 2) Whether Jio announces new tariff plans or Offers in December. 3) How well do Airtel, Vodafone & Idea make use of their existing or recently acquired spectrum resources in the coming 6 months in trying to combat Jio as well as each other. Jio was facing substantial Call-connectivity issues with other operators throughout September & October. But over the recent couple of weeks, the issues seem to have been considerably resolved as most users are reporting Call-connectivity within just 1 attempt. Now Jio needs to focus on improving the experience with Data service, which had taken a beating due to the huge traffic being generated from the millions of customers it added during the last 2-odd months. Some reports suggest that Jio is rolling out LTE-Advanced (Carrier Aggregation) technology on a PAN-India basis, which should help the operator in better utilising it's Spectrum resources and improve the overall Data through-puts for most users. Let's wait & watch on how successful the operator is in completing this task well before the Welcome Offer period ends. Reliance Jio can expect to see a major portion of it's Welcome Offer user base to upgrade to being Paid-users only if the operator is able to offer decent QoS both on Voice Calls as well as Data service atleast for the last 2 weeks of the Welcome Offer period.
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