Vodafone-Idea rapidly losing Active Subscribers vs Airtel & Jio

TRAI recently came out with Subscribers Report for the period ending April 2019. The headline that most media channels flashed was that Jio added 8 million subscribers, while Airtel & Vodafone-Idea lost 3 million & 1.5 million subscribers respectively.

I decided to collate the Total Subscribers Data, alongwith VLR % Data for all the above 3 operators since January 2019, to arrive at the Active Subscriber base data for the last 4 months. The data shows that Reliance Jio's active subscribers base has grown by over 10% between January & April 2019 . Airtel's active subscribers count is also fairly steady with a marginal 2% drop during the same period. But Vodafone-Idea has seen a massive 11% drop in it's active subscribers count, with April 2019 proving to be worst month during the period.

As you can see from the chart alongside, Reliance Jio's VLR subscriber base increased from 240 million to 265 million during the 3 months period. It continues to be the No.3 operator in the country, but is now a lot closer to the Top-2 players. Vodafone-Idea could soon be losing it's No.1 position, atleast in terms of the VLR base. In January 2019, Vodafone-Idea had a comfortable lead of 54 million over Airtel and 145 million over Reliance Jio. Now the gap is down to just 18 million over Airtel and 77 million over Reliance Jio. Vodafone-Idea has been losing it's active subscribers every month. But the biggest drop happened in April 2019, when it's VLR % dropped from 93.27% to 87.03%. This resulted in an erosion of 26 million VLR subscribers count in a single month.

The exact reason for such a big drop in Vodafone-Idea's VLR % is yet unknown. But it could also be due to the massive Network overhaul activity underway for the operator in several circles. The VLR % might prop up again to over 90% once the Network stabilizes again. We could see another couple of months of low VLR % for Vodafone Idea, before we start seeing the effects of improved Network performance for the operator.

On the other hand, Airtel continues it's aggressive marketing alongwith improving it's 4G network coverage. Airtel is also a beneficiary of Vodafone-Idea's network troubles during this period of overhaul. Both the operators were in any case expected to lose substantial numbers after they introduced the minimum recharge plans, where every user had to recharge with atleast Rs.35 evey 28 days to continue availing service on their Airtel or Vodafone or Idea sim cards. During the 3 months period from January to April 2019, Airtel lost just 7 million of it's active subscribers count, while it's VLR % improved from 97.3% to 100.7%. Airtel is also probably receiving inflow from Tata Tele's subscribers base, with people losing patience of the delayed merger deal. Tata Tele subscribers are rapidly porting out their numbers to other operators, with Airtel probably getting a good share of it.

Reliance Jio continues it's steady march towards it's goal to become India's No.1 operator in terms of Revenues as well as Subscribers. It continues to see it's VLR % remaining steady around the 83 to 84% mark. Reliance Jio could become the No.2 operator in terms of Active subscribers by the end of December 2019, if not sooner. By then it could very well be the No.1 operator in terms of Revenues, that too by a decent margin.

Who is winning the Revenue Race: Airtel or Vodafone-Idea or Jio?

The TRAI's Revenue figures for March'2019 Quarter are now out. And it's throwing some interesting information.

For the Quarter ending December 2018, Vodafone-Idea was the No.1 operator with an Adjusted Gross Revenue (AGR, including NLD, ILD and ISP numbers) figure of Rs.10,377 crores. It was closely followed by Airtel at No.2 with an AGR of Rs.10,146 crores, just about 2.3% shy of the leader. Then came Jio at No.3 with an AGR of Rs.9,644 crores, just about 5% shy of the No.2 player. That means the gap between No.1 and No.3 was just about 7%!! BSNL/MTNL is a distant No.4 with an AGR of Rs.2864 crores.

With competition so tight, coupled with the fact that Reliance Jio continues to add millions of new 4G customers every month, it's Monthly addition figure of 4G customers is larger than the Quarterly addition figures of 4G customers for both Vodafone-Idea and Bharti Airtel, things were set to change in the Revenue Rankings sooner or later.

The Big News this quarter is that Reliance Jio has already overtaken Bharti Airtel to become No.2 in the Revenue Rankings, even though it posted just 4% growth in it's AGR figure Q-o-Q to reach Rs.10,032 crores. The bigger reason being a near 11.5% drop in AGR for Bharti Airtel to reach Rs.8,986 crores. The reasons for such a sharp drop in AGR for India's former No.1 operator is not exactly known. It could be due to some one-time adjustments as well and the AGR figure might bounce back in the next quarter. That we will have to wait & see. Currently we will focus on the numbers that we have.

Vodafone-Idea has managed to hold it's fort with a nominal 0.3% drop in AGR and is now at Rs.10,348 crores. But it is very likely that Vodafone-Idea will lose it's No.1 position to Reliance Jio in the June'19 quarter, unless it manages to ring in some growth for itself. BSNL/MTNL posted a strong 24% Q-o-Q growth in it's AGR figure and it now stands at Rs.3,546 crores.

Bharti Airtel: It managed to report a growth in it's AGR for 10 out of the 22 circles. The circles where it managed to post double digit % growth are: Bihar, Gujarat, North East and West Bengal. Even Orissa and Rajasthan posted healthy growth for Airtel. But at the same time Airtel saw massive drops in AGR figures for important circles like Delhi, Mumbai, Karnataka and Tamil Nadu. Even Airtel's NLD AGR has seen a drop of 18% Q-o-Q. Karnataka alone contributed 8.5% of Airtel's Total AGR in December'18. And it reported a drop of 15% in AGR for it's biggest contributing circle. Airtel is rapidly expanding it's 4G coverage and re-farming it's 2G & 3G spectrum for use with 4G in many circles to expand capacities. Hopefully this should help bring back some growth in AGR in the coming quarters. Bharti Airtel will also receive a small boost in AGR when Tata Tele's mobile business finally merges with it. That process is in the final stages.

Vodafone-Idea: AGR figures for almost all circles were pretty stable Q-o-Q in case of Vodafone Idea, with only 1 or 2% variations in most cases. Only Bihar circle saw an erosion of nearly 19%. Gujarat, Haryana, Maharashtra and Punjab reported some amount of noticeable growth, but nothing significant. Vodafone-Idea too continues to improve the capacity & reach of it's 4G network, primarily by combining the frequencies of both previous entities. It has the advantage of having the largest pool of 4G-capable spectrum on a combined basis now, after merger. This should translate into capacity advantage sooner or later and then we could see Vodafone-Idea reporting healthy growth in customers as well as revenues.

Reliance Jio: Riding on a strong growth in customer additions across the country, Reliance Jio managed to post a growth of between 2% and 7% for most of the 21 out of the 22 circles, where it reported an increase. It was only the circle of Mumbai where it reported a decline of 1.5% in AGR. With a huge number of Jio Phone as well as Smart Phone users on it's network across all parts of the country, Reliance Jio is certainly experiencing capacity constraints in several regions. I for one am not happy with my experience of Jio service over the last few months. Jio has deployed it's best network only in Urban areas or in areas of high population density and paying capacity. While it has deployed secondary network in rural areas, more focused on catering to Jio Phone users. Jio has the momentum in it's favour currently. But as and when a higher proportion of it's customers start experiencing poor service, it could very well see a slowdown in growth momentum.

Why are Reliance Jio and Vodafone Idea divesting their Fibre & Tower infrastructure?

Over the last few weeks we have seen announcements from both Reliance Jio as well as Vodafone Idea, about their actions or plans related to divesting their stake in their Fibre and Tower subsidiaries. Telecom Towers and Fibre Optic cables form the crucial backbone of Wireless telecom services. Then why are two of India's Top-3 operators in a hurry to reduce or divest their stake in their telecom infrastructure subsidiaries?

Each of the Top-3 wireless operators in India; i.e. Vodafone Idea, Bharti Airtel and Reliance Jio; have their network equipment working on nearly 2 lakh telecom towers across the country, which helps them to cover over 90% of the population of India with their 2G or 3G or 4G services. While Reliance Jio is a 4G-only operator, Bharti Airtel and Vodafone Idea are still offering 2G services with a population coverage of almost 95%. It is mainly being used to serve the people who are yet to upgrade to smart phones and mainly use their phones for voice calling service. 2G service is being used by many Smart phone users as well, where their primary sim is on 4G network, but their secondary sim has to be on 2G network. The secondary sim doesn't generate much revenues and is mainly used for incoming calls. And now we can see newer smart phones being launched with the ability to have both sim cards latched on to 4G networks.

Hence the days of 2G networks existence are now numbered. The 3G network will die even faster. Vodafone Idea and Bharti Airtel were having a 3G network mainly in areas of higher population density and was mainly used for Wireless Data services, before the advent of 4G networks. Now both the operators are focused on expanding their 4G networks, starting with areas of higher population density and busy highways, and then moving to lower density regions. While doing so, they are even re-farming their 2100 MHz spectrum (which was used for 3G service) for use with their 4G network in order to increase their 4G Data handling capacity. It goes without saying that the 4G network is lot more efficient than 3G or 2G networks and can now carry both Data as well as Voice traffic.

Since the traffic on 2G networks is also decreasing with every passing day, these operators are reducing the spectrum allocated for 2G networks (mainly 900 Mhz and 1800 Mhz bands) and re-farming major portions for use with their 4G networks. While Reliance Jio has already achieved a population coverage of nearly 90% with their 4G-only network, both Bharti Airtel and Vodafone-Idea are currently at about 65 to 70% with their respective 4G networks. As and when they approach 90% population coverage with 4G networks, these operators will start shutting down their 2G & 3G networks at a much faster pace, forcing their customers to upgrade their phones to receive better service.

Each of the three operators offering 4G service, are seeing an average monthly Data consumption of nearly 10 GB or more per customer. With nearly 450 to 500 million people already enjoying 4G services, there is humongous amount of Data traffic being carried by these operators. This is where the role of the Fibre Optic cables comes into play. While Reliance Jio has a higher proportion of their telecom towers connected with Fibre optic cables, it has a capacity advantage. Reliance Jio network design was planned to handle such huge amounts of Data traffic, right from Day-1. On the other hand, Bharti Airtel and Vodafone-Idea were relying more on Wireless micro-links for communication between different towers in a region and only a select few 'Node' towers were connected with fibre optic cables. They are now being forced to increase the fibre connectivity to higher proportion of their towers in order to be able to handle the hugely increased data traffic.

With the Towers and the Fibre infrastructure playing such an important role in the functioning of a wireless data network, Why are these operators in a hurry to reduce or divest their stakes in those subsidiaries?

And the reason is Monetisation. Reliance Jio has built nearly 1.5 lakh towers of it's own. On all these towers currently only Reliance Jio equipment is fixed. Most of these towers are said to have the capacity of have equipment of more than 1 operator. By having another operator putting up their equipment on a tower, Reliance Jio's tower company can start earning rental income, without any significant increase in operating costs. Whichever operator becomes a tenant on Reliance Jio's towers, would also be interested in sharing the Fibre optic cable that most of these towers are connected with. This way Reliance Jio's Fibre company will start earning lease income by leasing a portion of it's cables capacity. With progress in technology, Fibre optic cables have seen huge increase in their capacities and it's not too expensive to increase the capacities of older cables, that were laid a few years ago.

Bharti Airtel, Vodafone India and Idea Cellular had collaborated to form a company called Indus Towers, which has been India's largest tower company for many years now. Now Reliance Jio's tower company will give it a tough fight, in a number of towers department. Bharti Airtel has it's tower company too, i.e. Bharti Infratel, which also is amongst the larger tower companies in India. Indus Towers is an unlisted company with 42% ownership each with Bharti Infratel and Vodafone India and the remaining 16% with Idea Cellular. Indus Towers is now merging with the listed Bharti Infratel to regain the No.1 position in terms of number of towers. Idea Cellular's shareholding in Indus Towers is now a part of Vodafone-Idea JV. It's highly likely that Vodafone-Idea will encash their stake in the merged Bharti Infratel, as the merger concludes.

In the Fibre front, both Vodafone and Idea Cellular had their own respective Fibre optic cables laid across nearly a lakh kilometres each. After the merger, it is likely that they have several overlapping routes. Just last week, Vodafone-Idea have received the approval from NCLT to separate their Fibre optic cables capacity into a separate subsidiary. This is most likely in preparation to divest a part of their stake in it and then let it operate as an independent company, which can lease it's surplus capacity to other operators.

Monetisation and all is fine as of now. But the question in mind is that, since the Data volumes are increasing at a rapid pace, they will be using an increased portion of their Fibre optic capacity with every passing month. So whatever is said to be Surplus capacity today, might not remain Surplus maybe say 12 or 24 months from now. That time they might have to lease capacity from someone else. Or else build new capacities. Sometimes I think that these operators lack long-term foresight. A few years back, they did nothing when Reliance Jio was building a brand new 4G-only network with huge capacities for Data consumption. Airtel, Vodafone & Idea clearly were over-confident on their 2G & 3G services and thought that their customers are more than happy with the services they were offering. Reliance Jio spent about 3 good years building it's fibres, towers & network and with it's big bang launch, it completely changed the way people consumed Data and also the financial metrics of the entire industry.

Vodafone Idea or Bharti Airtel: Who is facing the Jio onslaught better?

In H2 of CY2016, when Reliance Jio opened the floodgates of it's pan-India 4G service, the situation in Indian Telecom market was way different that what it is today, both on the customers side as well as operators side.

On the customers side, we were used to recharging with 1 GB or 2 GB or 5 GB Data plans, which would be used over a month or more. And for calling we used to recharge for talktime and rate cutters and would be cautious about the minutes we use spend speaking on the phone or the Data that we consume.

On the Operators side, the Top-3 players back then; namely Airtel, Vodafone and Idea; held around 80% market share, while the smaller players like BSNL, RCom, Tata Tele, Aircel & Telenor, held the remaining 20% amongst themselves. The Top-3 players were generating big profits every quarter and reported healthy growth Q-o-Q, while the smaller players were either in losses or just about managing to cover their costs.

We are now in the middle of 2019 now, i.e. about 30+ months since the launch of Jio's 4G services. There are just 4 players in the market. Vodafone & Idea, which were the No.2 & No.3 players back then, have merged to become the No.1 now. Airtel, which was the No.1 player back then, is now No.2, after having taken over the Spectrum or Operations of Telenor, Aircel and Tata Tele. But they both are rapidly losing market share to Jio. By now Jio has probably overtaken Airtel to become No.2 operator in India and could overtake Vodafone Idea in the next few months to become No.1.

And we, the customers, no longer measure the minutes we spend talking on the mobile. Neither do we bother too much about the amount of Data we consume watching & downloading videos and other stuff on the internet. And we are now spending a fraction of what we used to spend for the measured use of wireless services that we were accustomed to.

Now it all boils down to how well Airtel and/or Vodafone Idea pull up their socks and start holding their fort in terms of Subscriber and Revenue market shares. In the initial few quarters of Jio's launch the rate of market share shift from these two players to Jio was very fast. But with every passing quarter, the shift is slowing down. Airtel as well as Vodafone Idea lagged Jio by a huge margin in terms of 4G network coverage & Data handling capacity. With every passing quarter, they are trying to catch up with Jio's reach by a few percentage points.

Even though both Airtel and Vodafone Idea each have nearly 300 million or more subscribers on their networks, nearly 60 to 70% of those are still on the 2G or 3G networks. And most of these are now using their Airtel or Vodafone Idea Sim as their secondary Sim cards and have taken a Jio connection as their primary sim card. Jio on the other hand is a 4G-only network and hence nearly 85% of it's subscriber base, that is registered on VLR (Visitor Location Register), is generating healthy revenue for the company. Compared to that, only about 35 to 40% of official subscriber bases of Airtel and Vodafone Idea are actually generating healthy revenues for the companies and most of the rest are just doing the Validity recharges.

In order to study the progress of Airtel and Vodafone Idea, I have decided to keep a track of the Q-o-Q progress of their 4G subscriber bases and the Total Data Volume handled by their networks. The first chart alongside represents the 4G subscriber numbers for both operators at the end of each quarter, starting from #Q1FY19. As we can see, both Airtel & VodafoneIdea were neck-to-neck for Q1 and Q2, but during the next 2 quarters, Airtel has pulled ahead of VodafoneIdea. From about 57.4 million 4G subscribers in #Q1FY19, VodafoneIdea has seen it increase to 80.7 million in #Q4FY19. During the same period, Airtel's 4G subscriber base has increased from 58.3 million to 86.8 million.

The possible reason for VodafoneIdea falling behind in the last 2 quarters is the merger taking place at the end of August 2018. Since then the merged company has started to remove duplicate network sites across the country in order to cut down on operating costs. These removed network equipment will now be used to expand the network coverage to more regions across the country. The company is also combining the spectrum holdings and launching it's network with much higher capacity than before. The effects of these network transitions should start reflecting in the 4G subscriber numbers in the second half of the current fiscal onwards.

Coming to the Total Data Volume handled by the networks of the two operators, the picture is quite similar to that in the 4G subscriber bases. Airtel had a small lead over VodafoneIdea in #Q1FY19. But it's lead has now expanded to a significant level by #Q4FY19. I am expecting this trend to start reversing and VodafoneIdea's numbers start closing the gap with Airtel's numbers from #Q3FY20 onwards.

I will try and bring Quarterly comparison updates to check the progress of these two operators. This will help us to see which one of the two is actually facing the Jio onslaught better. As of now, it is Airtel which is performing better than VodafoneIdea for sure.