Idea Cellular - Pre-Jio & Post-Jio subscriber addition progress

As we all know that Reliance Jio had started offering it's services under the LYF handset bundled Preview Offer sometime in May'16. Since one needed to purchase a LYF handset to enjoy the Jio Preview Offer benefits, the number of subscribers Jio added during the months of May to July'16 were very limited, something around an average of less than 1 million a month. It was only in the 3rd or 4th week of August'16 that Jio opened the floodgates with opening of the Jio Preview Offer to almost all 4G handsets in the market, existing as well as new purchases. Hence August'16 alone must have seen about 3 million users getting active on Jio's network. This was followed up with launch of Reliance Jio services on 5th September'16 with the start of the Jio Welcome Offer, which further accelerated the pace of new users joining the Jio network.

We now have the monthly data released by the Telecom Regulator (TRAI) for Operator-wise & Circle-wise Subscriber numbers, both Total Subscribers as well as VLR (Active) Subscribers, till the month of October'16. For this analysis, I have collated Subscriber Data since the month of May'16. Reliance Jio has started announcing it's monthly Subscriber numbers from the month of September'16. Hence the 16 million subscribers which were enrolled by Reliance Jio till the end of September'16, also included the nearly 5 million subscribers enrolled under the Preview Offer, prior to the launch of Jio Welcome Offer on 5th September'16. Reliance Jio added another 19.6 million subscribers in October'16 to take it's Total Subscriber base to 35.6 million. October'16 could prove to be the best month for Reliance Jio in terms of monthly subscribers addition.

Coming to Idea Cellular, it was expected that subscriber additions for all operators (other than Reliance Jio) would slowdown substantially from September'16 onwards. But the subscriber addition numbers for some of the larger operators like Bharti Airtel & Idea Cellular are telling a completely different story. I will focus on Idea Cellular's numbers in this report ( & try to write a separate report for Bharti Airtel).

The table alongside is showing the consolidated (All 22 Circles) subscriber numbers (Total as well as VLR) for Idea Cellular from May'16 till October'16. As we can see, for the 3 months prior to the launch of Reliance Jio's Welcome Offer (i.e. till August'16), Idea Cellular added on an average less than 0.5 million new subscribers every month, while the increase in VLR base was an average of 1.02 million every month. But for the 2 months post the launch of Reliance's JWO (i.e. for September'16 & October'16), Idea Cellular saw a sudden acceleration in subscriber additions with 8.25 million subscribers getting enrolled in those 2 months, which means an average of little over 4 million a month!! The picture is not that great on the VLR base front, but still Idea Cellular's VLR base increased at an average of 1.44 million each month, which is still nearly 40% higher than what Idea Cellular did in the 3 prior months. This has me surprised for sure.

Idea Cellular had about 20% VLR base market share in August'16. Hence out of the near 36 million subscribers that Jio added till October'16, we can expect approximately 20% of them to be Idea Cellular customers too, i.e. about 7 million in number. This should have had atleast

some negative impact on Idea Cellular's VLR base progress post August'16. But the result was opposite. Idea Cellular's VLR base increased by about 2.9 million in those 2 months post August'16. In all likelihood, a major portion of the Idea customers who also purchased a Jio connection, are still using their Idea Sim card, especially the ones who have their Idea number as their Primary number. All such Idea customers who have taken up a Jio connection will definitely consume less amount of Data & Voice minutes on Idea Network. To compensate for this loss of volume, Idea Cellular seems to have successfully went on an aggression in trying to attract customers from other rivals, especially the smaller ones. Operators like Reliance Communications, Tata Teleservices, MTS & Videocon together lost quite a few million customers during the last few months. Even the larger peer Vodafone India has done very poorly on the subscriber addition front in several of it's circles. Idea Cellular seems to have grabbed a substantial portion of all such subscribers who were looking to change their mobile operator.

Circle-wise Performance: A look at the Circle-wise changes in Idea Cellular's VLR base for 3 months prior to Jio launch & 2 months post Jio launch, immediately tells us the areas where the operator has increased it's aggression and the areas where it is feeling some heat from

competition. Let's first look at circles where Idea Cellular's pace of VLR base increase has suddenly decelerated. The Metro Circles of Mumbai, Delhi & Kolkata, alongwith Tamil Nadu (Chennai numbers are now included in Tamil Nadu's numbers) certainly figure in this list. In each of these Metro circles, Idea Cellular is a relatively late entrant (compared to it's larger peers) and hence it was growing faster on a smaller base. The strong double-digit (or near double-digit) growth in VLR base in each of the 4 circles between the 3 months of May to August'16 are a clear certificate of the same. Idea had launched 3G services using 900 MHz spectrum in the 2 circles of Delhi & Kolkata in 2015, while it had launched 4G service (No 3G) in Tamil Nadu circle in first half of 2016. Idea Cellular is the weakest in Mumbai as it offers neither 3G nor 4G service on it's own. Hence it's susceptibility in Mumbai circle is clearly seen in 2 months post Jio launch. The customers in Metro circles are also expected to upgrade to 4G services faster than other circles. Hence capability to offer 4G service or atleast good quality 3G service becomes even more important in these circles.

Amongst it's Circles of strength, Kerala has done poorly with a negative growth in VLR base during post Jio 2 months. Part of it could also be due to it's cancellation of 3G ICR with Airtel, where the latter's customers were roaming on Idea Cellular's 3G network. Hopefully Idea Cellular will bounce back in Kerala soon as it is one the most important circles for the operator. In circles of Maharashtra, Madhya Pradesh, Andhra Pradesh and Gujarat, Idea Cellular continued to increase it's VLR base, though at a slower pace. The circles where Idea Cellular has seen a sharp improvement in pace of VLR base expansion are Assam, Bihar, Haryana, UP (E) & (W) and West Bengal. These 6 circles added over 1.6 million users to Idea Cellular's VLR tally during the 2 months post Jio launch. Even in Karnataka circle, where Idea Cellular is relatively small, it has continued to see healthy growth, both pre-Jio & post-Jio months. Idea offers 3G service in Karnataka via ICR with Vodafone now, but it is mainly banking on it's own 4G service for growth, having launched it in first half of 2016.

Finally, to summarise, I have to admit again that Idea Cellular has positively surprised me a bit with the pace of subscriber additions post Jio launch, especially on the VLR base front. By the end of December'16, nearly 6 to 8% of Idea Cellular's customer base might have taken a Jio Sim, atleast as a secondary connection. Hence the operator will be impacted due to substantially lower usage from these customers. For the rest of the 90+% customer base, there will be impact coming from lower tariffs for both Voice Calls as well as Data service. Hence Idea Cellular will be hoping for substantially increased usage, especially for Data service, from all such users so that drop in ARPUs will be limited to a small number and the increase in VLR base will help compensate for most of it. In my previous reports, I had mentioned that I am expecting operators like Bharti Airtel & Idea Cellular to post a 5 to 10% drop in Total Revenues for Q3-FY'17. But looking at the aggressive expansion by both these operators, there is a strong chance that the impact (drop) will be closer to the lower end of my expectation. The impact due to Demonetisation will most-probably be very small and as it was temporary in nature, only for the initial few weeks, I don't think it will drastically alter my expectations. We will come to know of the Q3 Results in the next couple of weeks.