VodafoneIdea vs BhartiAirtel - Q3FY20 comparison

A couple of days ago I read a headline in some business news media that Bharti Airtel has overtaken HDFC Bank in Market Cap terms with a value of nearly Rs.2.78 lakh crores. Then I checked the Market Cap of Vodafone Idea, which is a part of my #StocksLogicPortfolio, and found it to be around Rs.12K crores only, i.e. about 4% of Bharti Airtel's Market Cap. Then I thought of comparing some important Operational numbers of both companies to see if this super-wide gap in the way both companies are valued is fair or not.

Both Vodafone Idea & Bharti Airtel are telecom service providers and compete in the Indian Mobile Services market are mostly the only things common between them. Beyond that there are a lot of differences. While Vodafone Idea is primarily a Mobile Service provider with a very small scale Wireline/Broadband operation in India and has some stake in Indus Towers. That's it. On the other hand, Bharti Airtel has several business verticals: Firstly, it is a Mobile Service Provider in 18 countries in Asia & South Africa, with India forming nearly 75% of it's Customer Base. But apart from that, Bharti Airtel is a significant player in Wireline/Broadband, Direct-to-Home & Payment Bank services in India. Hence Bharti Airtel certainly deserves some premium for it's diversification into more markets for Mobile Services & into more services in India. It's Indian Mobile Services business contributes nearly 50% of it's Consolidated Revenues, as of #Q3FY20. This share is set to increase from #Q4FY20 onwards because of the tariff hikes effected from December'19 by the entire Indian Mobile Services industry.

Now lets look at some Important Numbers for Comparison in the table alongside. In terms of Wireless Customer base, Minutes on Network & Data Volume, Vodafone Idea's numbers are around the 70% mark of Bharti Airtel's numbers. But in terms of Total Income, Vodafone Idea is closer to 50% mark of Bharti Airtel, mainly because of the reasons I have mentioned in the previous paragraph. Vodafone Idea's EBITDA is lower at around 40% of Bharti Airtel, primarily because the former is still in the process of Integrating the two different networks of Vodafone India and Idea Cellular into one. By the end of Q3FY20, the company is said to have removed duplicate equipment from nearly 58,000 towers out of 73,000 towers which carried equipment of both individual operators at the start of integration process. We should see progressive improvement in this department for Vodafone Idea over the next 2 to 4 quarters, as it completes removing duplicate equipment from remaining 15,000 towers.

Coming to Net Debt figures, Vodafone Idea's figure is 10% lower than that of Bharti Airtel. But still the former's Interest Cost is 25% higher than that of the latter. Surprising, isn't it? It's clear that Bharti Airtel has raised Debt from lower cost sources compared to Vodafone Idea. Considering the current situation where world over the Central Banks are cutting rates to boost liquidity in the markets, Vodafone Idea can look for swapping it's higher-cost debt with lower cost ones. This can translate to substantial savings in terms of Quarterly Interest Cost & them help take on more Debt for it's AGR dues payout that will have to happen sometime soon. Let's hope to see some progress on this front too in the next couple of quarters.

Coming to Depreciation figures, it includes Depreciation provisioning for CAPEX done as well as the Lease rentals paid to Tower companies. With Vodafone Idea expected to exit duplicate tenancies from another 15,000 towers over the next 2 or 3 of quarters, we can expect reduction in Depreciation figures for the company progressively over the next 2 to 4 quarters. This will help bring down the % comparison figure with that Bharti Airtel, which currently stands at about 85%.

What should be the Valuation Comparison now & in coming Quarters: Considering all the negatives from this comparison for Vodafone Idea, like lower EBITDA %, higher Interest Cost, potential of significant jump in Debt post AGR issue closure, I think Vodafone Idea deserves a Market Cap of around 8 to 10% of Bharti Airtel, which currently stands at Rs.2,73,870 crores. That means Vodafone Idea's Market Cap should be (as per my estimates) between Rs.22K to 27K crores, translating into a share price of around Rs.7.80 to Rs.9.60. That means Vodafone Idea is currently trading at nearly half of my estimated value, in comparison to Bharti Airtel's value. If Vodafone Idea makes decent progress in the coming quarters on the above discussed parameters, in comparison with Bharti Airtel's respective figures, I will certainly push up the Market Cap % range for Vodafone Idea, compared to that of Bharti Airtel. I will try to present the above Comparison Table after the Results declaration for every quarter for both companies so that we can check if Vodafone Idea is making any progress or not in comparison to Bharti Airtel's performance.

What are the chances of survival for Vodafone Idea Ltd?

I have been closely following the developments of the Telecom Sector in India since a long time & especially that of Vodafone Idea Ltd., from even before their Merger was formally announced. I have been sharing my views on the sector on a regular basis. This one I am writing after a gap of over 6 months.

During the last 6 to 8 months, there have been 2 big developments: (1) Reliance Jio's decision to start charging IUC from customers in early October'19; (2) The SC order on AGR case, which went brutally against Vodafone Idea & Bharti Airtel.

The First Big Development was terrific news for the entire Telecom sector in India. That was the first sign of tariff hike from Reliance Jio, which had single-handedly brought the sector to it's knees by launching revolutionary tariff plans a couple of years ago. Tariff hike from Reliance Jio meant that others in the business, i.e. Airtel & Vodafone Idea, too can think of charging more for their services. This was a very BIG Development for the sector & no wonder that we saw share prices of all these businesses rallying strongly.

Then came the Second Big Development, where the SC brutally thrashed the arguments of the Telecom Operators and asked them to make humongous payments towards disputed AGR dues + Interest for the last 1.5 decade + Penalties on delayed payment + Interest on those Penalties. The amounts being spoken are in excess of Rs.35,000 crores for Bharti Airtel and in excess of Rs.50,000 crores for Vodafone+Idea. Several pleas requesting SC to take sympathetic view & review it's Order have been thrashed again. Even when the Govt of India is ready to compromise, knowing fully well that the Huge amounts could crush the chances of survival for 1 of the only 3 major telecom players in the country, the SC is just not ready to budge.

The media & the stock market seem to have written off the chances of survival for Vodafone Idea Ltd. in the face of the repeated SC thrashing. Now let's look at some facts & try to analyse the chances of survival for the operator who was the largest one in the country until a few months ago. First let's look at the operational part. Have a look at the following charts which are representing the Quarterly Progress of 2 important numbers: Subscriber base and the company's Quarterly Total Income:

The merger of Vodafone India & Idea Cellular got legally effective from the end of August'2018. Hence the Total Income figures for June'18 & Sept'18 cannot be compared with following numbers. Let's look at the numbers from Q3FY19 (i.e. Dec'18) onwards. Vodafone Idea's subscriber base stood at about 387 million by the end of Dec'18, comprising of 72% 2G users, 19% 4G users & remaining 3G users. In the next 4 quarters, i.e. by the end of Dec'19, Vodafone Idea's total subscriber base dropped over 20% to reach 304 million. 61% of those were 2G users (33% drop in numbers), 34% of those were 4G users (38% jump) and remaining 5% were 3G users (56% drop).

This massive erosion of 2G & 3G subscriber base, resulting in over 21% drop in overall subscriber base, should have impacted the company's Total Income by atleast 15%, isn't it? But look at the Total Income chart. The drop is barely 5% in Vodafone Idea's Quarterly Total Income. That means the 29 million extra 4G customers that Vodafone Idea managed to add during those 4 Quarters, managed to compensate over 75% of loss of Revenues from the 112 million drop in 2G & 3G

customer base of the company. Now have a look at the chart alongside:

Between Q3FY19 and Q3FY20, the Data Volume carried by Vodafone Idea on it's network jumped 40%. This figure closely co-relates to the 38% jump in it's 4G customer base. During the same period, the Voice Calls traffic has dropped by about 12%, reflecting the drop in Voice-only users from it's network, despite increase in Voice usage by most users across the country due to Unlimited Calling Plans.

With every passing quarter, Vodafone Idea is launching it's stronger & higher capacity Integrated network in more & more districts. By the end of Dec'19, it had completed rollout of it's Integrated network in 86% of the districts. This will help the company increase it's aggression in capturing more & more 4G customers. In each of the last 2 quarters, Vodafone Idea added over 8 million 4G users to it's network. I think this figure can jump in coming quarters. Combine this with the near 30 to 40% tariff hike that the entire industry undertook in Dec'19, which will start reflecting in Revenue numbers for all operators from Q4FY20 onwards, and we will see Vodafone Idea getting much stronger than before. Even a 20 to 25% jump in ARPU will result in Vodafone Idea's Quarterly Revenues jumping by around Rs.2500 to 3000 crores. And with continued growth in 4G user base, this jump could be higher.

Survival past AGR issue: Assuming the worst case scenario that Vodafone Idea is made to pay over Rs.50,000 crores over the next 15 years or so, at an Interest Rate of about 8% p.a., Vodafone Idea will see it's Annual Interest Cost increase by about Rs.4,000 crores. It's Annual Interest cost currently stands at about Rs.14,000 crores, which will jump to about Rs.18,000 to 19,000 crores. With the recent tariff hike & aggressive push to increase it's 4G user base, I am expecting Vodafone Idea to be reporting Annual Revenues of over Rs.62,000 crores in FY'21, which could keep growing at a conservative figure of about 5% Y-o-Y for the next many years. Now all that it needs to do is to manage all it's Operating & Other Costs (including Lease Rentals) within a figure of about Rs.40,000 crores a year, which will allow it to survive in the next year and then get stronger again with every passing year. There are more possible positives in the form of potential Debt Restructuring to a lower Interest Rate after the recent slashing of Rates by the RBI and possible Fund Raising via sale of it's stake in Indus Towers and it's Fibre Assets. A 1% reduction in Interest Rate on all it's Borrowings alone can reduce it's annual Interest Cost by Rs.1,500 to 2000 crores.

Vodafone Plc and Aditya Birla Group together own almost 75% of Vodafone Idea. They are smart business people. I don't think any businessman would give up on a business which has the potential to generate well over Rs.10 lakh crores in Revenues and an EBITDA of over Rs.2.50 lakh crores over the next 15 years, just for the sake of avoiding a payment of Rs.50,000 crores or so. 

Jio vs Airtel vs Vodafone Idea - Subscriber Numbers upto July'19

Every month we have been reading reports of Reliance Jio adding a few million subscribers and Airtel + Vodafone Idea losing a few million of theirs. July'19 is no different. Reliance Jio maintained it's subscribers momentum with addition of another 8.5 million subscribers in July'19, taking it's total to almost 340 million. Vodafone Idea lost a smaller number of users compared to the previous 2 months. It's total subscriber base now stands at 380 million, down by 3.4 million. Airtel has now included Tata Tele's subscribers in it's count. Tata Tele had about 11.5 million subscribers in June'19. But Airtel+Tata Tele's subscriber count has jumped from 320.3 million in June'19 to 328.5 million in July'19. That means Airtel also lost nearly 3.2 million subscribers during July'19.

All the three operators have seen their VLR % erode during July'19. Starting with Airtel, it's own VLR % at the end of June'19 was 98.5%, which dropped to 94.95% in July'19. This is mainly due to addition of Tata Tele's subscribers in it's total count. Most of these Tata Tele's subscribers were already using Airtel's network on Roaming. Hence this had helped boost Airtel's VLR % for the previous few months, as can be seen from the table alongside. Airtel's VLR base has dropped from 315.5 million to 311.9 million, i.e. a drop of 3.6 million active users. The same at the end of January'19 was 331.2 million. That means Airtel has lost close to 16 million active users during these 6 months.

Looking at Vodafone Idea, it is already tainted to be the worst performing Telecom operator in terms of subscriber & revenue growth in the recent months. The effects of large-scale Network Integration activity across several circles has had a severe impact on Vodafone Idea's active subscribers count post March'19. At the end of March'19, Vodafone Idea's Total subscribers were 395 million, which is now down to 380 million, i.e. a loss of just 15 million users in 4 months time. Nothing alarming. But during the same period, it's VLR % has dropped from 93.3% to 81.9%, in a staggered manner. This means it's active subscriber count has dropped from 368 million to 311 million over those 4 months, i.e. a loss of 57 million, which is large figure. An average of over 14 million a month!! This is substantially more than what Jio is adding every month.

Over the last month or so, we have seen several announcements from Vodafone Idea about launch of TurboNet 4G services in more & more cities across the country. TurboNet 4G is the brand they have adopted for announcing the launch of Integrated network for Vodafone & Idea combined. TurboNet 4G also represents the launch of a network which is expected to offer wider coverage & much larger capacity than before, with the help of the largest spectrum pool amongst all operators in India. This should help improve adoption of 4G services amongst Vodafone & Idea users and also attract users from rival networks. We may not see much of it's effect in August numbers, but I am sure we will start seeing a boost in numbers for Vodafone Idea from September'19 onwards. Apart from launch of TurboNet 4G, Vodafone Idea has also introduced lower denomination recharge options for users to remain active on the network.

Coming to Reliance Jio, it's monthly subscriber addition numbers have been very consistent. It seems as if the company is despatching only a limited number of simcards / Jio Phones every month. For the 6 months between January to July'19, Jio's Total subscriber base went up from 289 million to 340 million, i.e. 51 million new additions translating into 8.5 million every month. That is precisely the number they are adding every month. Even their VLR % is steady around the 83-84% mark. Looks like everything is working in a very measured fashion. Sometimes even raises a doubt in my mind whether these are genuine numbers or manufactured ones.

Airtel & Vodafone Idea are now neck-to-neck in terms of active subscribers. It will be an interesting race from September'19 onwards. Airtel might inch ahead in August as Vodafone Idea's TurboNet 4G marketing started only in the latter half of August. In about 4 to 5 months time, Jio will close the gap between it's Active base numbers and the other two, which currently stands at about 29 million. And most probably Jio will just zoom past both of them. Both Airtel & Vodafone Idea are unlikely to offer something like the Jio Phone, which is what is pulling major numbers for Reliance Jio since the last couple of years. Both Airtel & Vodafone Idea will prefer to expand their 4G network coverage to get closer to that offered by Jio currently and target the Smartphone users to upgrade to 4G or pull a few dis-satisfied users from Jio or BSNL.

That brings us to the comparison of Wireless Broadband numbers of the 3 operators. Jio's entire subscriber base is counted as Broadband user base as it's 4G-only network. In case of both Airtel & Vodafone Idea, it comprises of 4G and 3G subscribers. The 3G subscriber base for both operators is rapidly falling. Both have less than 25 million 3G users on their Networks as of July'19. By the end of this year, both operators are expected to shut down 3G networks as the same spectrum can be used to add to their 4G capacity. So all these 40 to 50 million 3G users will be forced to upgrade their handsets and start availing 4G services over the next 3 to 6 months.

Airtel's Wireless Broadband user base has been steadily increasing over the last 6 months. It went from 110 million in January'19 to over 121 million in July'19, i.e. at a pace of almost 2 million a month. On the other hand, Vodafone Idea had a tough time trying to maintain it's wireless broadband user numbers between February'19 to May'19, when it lost about 1.25 million users. It has seen some increase for the last 2 months of June & July'19. I am pretty sure that this will pick up pace from September'19 onwards & we could see Vodafone Idea adding 2 million+ Wireless Broadband users every month. This race between Airtel and Vodafone Idea will get very interesting by the end of 2019. I am excited to see which one of the two proves to be a bigger challenger to Jio in the year 2020. So far we all know that Airtel has performed better than Vodafone Idea. But there are reasons for the same. As Vodafone Idea starts pushing it's upgraded network services through formal advertisement channels, we should see the company numbers start improving.

Q1FY20 Telecom AGR update: BSNL is on a surprise comeback

TRAI announced the Q1FY20 Financial Numbers for all Telecom operators a couple of days back. I have considered the Adjusted Gross Revenue (AGR) numbers for the Top-4 Telecom operators in my analysis. For Q3FY19, Vodafone Idea was No.1 (31.4% Market-share), Bharti Airtel was No.2 (30.7%), Reliance Jio was No.3 (29.2%) and BSNL+MTNL was No.4 (8.7%). Things have changed substantially over the last 2 quarters.

Vodafone Idea was expected to lose some market share as it is undertaking a massive Network Integration exercise since November'2018. This has resulted in Vodafone Idea slipping to No.3 position with 27.2% market share in Q1FY20. Bharti Airtel had lost it's No.2 position during Q4FY19 due to some one-off adjustments. It has now regained the No.2 position with a market share of 29.6%. Reliance Jio has jumped to No.1 position in Q1FY20 with a market share of 30.2%. But all these developments were more or less expected. What is surprising is the fact that BSNL seems to be on a strong comeback. BSNL+MTNL combine had reported an AGR of just Rs.2864 crores in Q3FY19, which jumped to Rs.3546 crores in Q4FY19, which was a Q-o-Q jump of about 24%. BSNL+MTNL combine has managed to post an even stronger Q-o-Q growth in Q1FY20 to improve it's AGR to Rs.4703 crores, which is a jump of almost 33%. This strong growth has resulted in BSNL+MTNL combine's market share improving substantially to 13% in Q1FY20.

If we compare the Q1FY20 numbers with Q3FY19 numbers, Bharti Airtel has managed to increase it's AGR by 5.5%, but lost market share by 1.1%. Vodafone Idea has seen it's AGR dip by 5.5%, resulting in it's market share dropping by 4.2%. Reliance Jio has reported an AGR increase of 13% and a market share increase of 1%. On the other hand, BSNL+MTNL combine has managed to increase it's AGR by 64%, resulting in it's market share increasing by 4.3%. BSNL has managed to post such strong growth entirely on it's own since MTNL's performance continues to be disappointing. It will be interesting to see if BSNL manages to continue to post healthy positive growth in the coming quarters. Over the last few months we have been reading many reports of BSNL delaying salary payments to it's staff due to paucity of funds. Government of India is seriously considering some major boost to BSNL, including handing over of MTNL's operations to BSNL. If this happens soon, BSNL will be able to improve it's services & presence in the 2 important Metro circles of Delhi & Mumbai. This should help to further improve BSNL's quarterly numbers. Let's wait & watch how things pan out in the coming quarters for BSNL.

Coming to Vodafone Idea, the company is expected to improve it's performance from Q2FY20 onwards. It's Network Integration work has progressed well over the previous 2 quarters and the company continues to rapidly Integrate the networks in more & more towers in various circles. Very soon we will see the company increasing it's marketing efforts to spread the word of it's Stronger & Larger Network in several cities across the country. Initially this marketing effort will be more localised, limited to only those cities where the Network Integration work is over and the capacity has been increased. As the company gets closer to achieving the Network Integration work in over 80-85% of it's towers across the country, then we will see Vodafone Idea pushing for large scale advertisements across various mediums. I am expecting this to start before the end of December'2019.

Bharti Airtel & Reliance Jio continue to aggressively market their services across the country & also continue to incrementally increase their coverage & capacity. While Bharti Airtel has started switching off it's 3G network from some locations and utilise that spectrum for 4G service, Reliance Jio is simultaneously working on rolling out it's wireline services on a commercial basis next month. This might reduce some of it's aggression on the wireless front and we could see some slow down in subscriber addition on Reliance Jio's Wireless network in the coming months.

The next data point awaited is the Subscribers data for the month of July'19, which should be released in the 3rd week of next month.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

How bad is Vodafone Idea's business doing?

Vodafone Idea Ltd. announced it's Q1FY20 Results about 10 days ago. Before the announcement, it's share price was trading close to Rs.10 levels, resulting in a Market Cap of just about Rs.28,000 crores. This in itself was ridiculous valuations for a company that still is India's No.1 or 2 mobile operator with over 300 million active users.

After the result announcement, Vodafone Idea's share price has crashed and is now close to Rs.5 levels!! That means it's Market Cap is just about Rs.15,000 crores now. This is an even super-ridiculous valuation. Now the big question is: Are things really so bad with the business of Vodafone Idea? Or is the market writing-off it's chances of survival too early?

Let's put some things in perspective. In 2017, when Vodafone India and Idea Cellular announced their decision to merge, they were the No.2 and No.3 mobile operators in the country, with each having a subscriber base of between 180 to 200 million. By the time the merger was approved in July-August 2018, they together had over 400 million subscribers. It was widely expected at that point that atleast 20 to 30% of their subscribers could be common, holding sim cards of both Vodafone & Idea. That means about 40 to 60 million subscribers of Vodafone, could also be having Idea sim card in their Dual-sim phones. Hence it was obviously expected that most of these subscribers will stop using either 1 of the two sim cards after the merger of the two operators.

Now look at the table alongside. The merger was formally concluded on 31st August'2018. By the end of that quarter, it's VLR (active) user base stood at just under 403 million, which started dropping at a faster and faster pace over the next 3 quarters and now stands at 322.4 million. That means Vodafone Idea has seen a drop of nearly 20% of it's active users base, most of it after Q3FY19. This should have resulted in a significant drop in the company's revenues. But if you look at the Total Income figures from Q3FY19 onwards, there has been barely a drop of about 3% till now.

What does this indicate? It clearly indicates that most of the 20% users who exited the Vodafone Idea network during the last 3 quarters, were not generating any revenues for the company. Isn't this good that the free-loaders have been removed from the network?

Now let's look at the other developments: Post the merger getting officially effective, the company had a massive task at hand, which was to integrate it's Networks, it's Administrative offices, it's Retail units, it's Staff, it's IT Systems, etc. After a couple of months of planning, the integration activities must have started sometime in November or December'2018. The biggest one of these to Integrate the Network sites & combining the Spectrum resources. This alone will take about 18 to 24 months to complete as they will have to physically do the integration activities on about 2,00,000 towers.

During this Network integration work, the Quality of Service certainly must be getting affected in regions where it is being undertaken at different points of time. Hence the company has not been aggressively marketing it's services to attract newer users on it's network. It is just trying to hold on to it's revenue-generating users. And I think it is doing a very fine job with it as it's Revenues are pretty stable even during this massive Network integration activities.

Once the company will have finished integrating & upgrading the networks in most of the Urban areas or high-population regions across the country, I am expecting the company to get lot more aggressive with it's marketing. At that time the company will have lot more capacity & coverage to offer to all it's old & new users. I think that point is still a couple of quarters away. Possibly during Q3FY20 or Q4FY20 is when Vodafone Idea is expected to get aggressive with it's marketing efforts.

Even with limited marketing efforts, Vodafone Idea has managed to increase it's 4G user base from 66 million to 85 million over the last 3 quarters. It's pace of growth is certainly slower than that of Airtel, but we cannot ignore the fact that Airtel is going full throttle with it's advertising & marketing efforts, while Vodafone Idea has curtailed the same till it's network is ready to offer better coverage & quality of service. The Total Data Volume on the network is increasing at a pace faster than the increase in number of 4G subscribers, reflecting the fact that each user is now consuming higher quantity of Data and the network is also able to offer the same. In the coming quarters, when the 4G user base is set to grow at a faster pace, we can expect to see the Data Volumes to grow even faster. Voice Minutes on the other hand are reporting a de-growth, mainly because of exit of many voice-only and that too incoming-only users from the network. The average voice usage per user is actually reporting an increase.

Going forward, I am expecting the consistent drop in VLR base, Quarter after quarter, since the last few quarters, to start reversing, possibly from Q3FY20 onwards. Even in Q2FY20, the drop in VLR base will be very small. Once the VLR numbers get steady, Vodafone Idea will start reporting some decent growth in it's Revenues on the back of increase in proportion of 4G users. Vodafone Idea's EBITDA margin currently is about 15 to 17%. I am expecting this to improve to about 22 to 25% in the next few quarters, mainly because of reduction of operating costs due to closure of more & more duplicate network sites of erstwhile Vodafone & Idea. By the end of this fiscal, most of the one-time costs in terms of compensations & penalties towards early termination of rental agreements with various Tower companies, will also be over. Then we will see massive change in the Net Loss figures reported by the company. From the current Quarterly Net Loss figures of over Rs.4,500 crores, we could see the figure drop to well under Rs.1,000 crores, possibly from Q4FY20 or Q1FY21.

Considering all these factors, do you think Vodafone Idea's business is doing so poorly to deserve a Market Cap of just about Rs.15,000 crores??

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Rise in Telecom tariffs: When can we expect it?

Reliance Jio has been dictating the tariffs in the Indian Wireless services market, ever since it launched it's services in middle of 2016. Reliance Jio first introduced trial services sometime in April 2016, but to avail the FREE services one had to purchase their LYF branded handset. Then later in August 2016, Jio started offering it's 4G sim cards for FREE usage for users of 4G handsets from select brands. And finally on 5th September 2016, it opened the gates for everyone to walk into a Jio store & get a Jio 4G sim, which came bundled with FREE usage till the end of December 2016, which was further extended to 31st March 2017.

At that point, i.e. end of March 2017, Reliance Jio had managed to add over 100 million users on it's 4G-only network. Airtel had over 300 million subscribers and Vodafone + Idea had over 400 million users on their respective networks. It's been little over 2 years since then. Reliance Jio's user base has shot up to over 300 million, that too all 4G-only subscribers. Airtel's user base has marginally shrunk to little under 300 million, which comprises of 95 million 4G users, 25 million 3G users and the rest nearly 160 million 2G users. Vodafone-Idea's user base has shrunk much more to about 320 million, comprising of 85 million 4G users, 25 million 3G users and 210 million 2G users.

Coming to tariffs, Reliance Jio launched some very aggressive tariffs in April 2017. They just removed the concept of counting talktime in terms of minutes or rupees or the concept of Roaming & STD calling and Data usage in terms of MBs or GBs per month. Everything came Unlimited for a fixed fee. The most popular plan for Smartphone users on Jio network is the Rs.399 plan, which comes with a validity of 84 days, which translates into an ARPU of about Rs.140 per month. But now a large portion of incremental users joining Jio network are the Jio Phone users, which have generate a lower ARPU of possibly under Rs.100 per month. Reliance Jio's overall ARPU for June 2019 quarter stood at about Rs.122 per month. This is with an Average Data usage of over 10 GB per user per month and Voice usage of over 650 minutes per user per month.

Bharti Airtel, Vodafone & Idea Cellular enjoyed healthy ARPUs in the region of Rs.175 to 200 per month back in 2016. The Average Voice usage used to be about 450 minutes per user per month and Average Data usage per Data customer was under 1 GB per user per month. After launch of Reliance Jio's services & tariff plans, all these incumbent operators have been forced to introduce tariff plans that are almost in line with those of Jio's plans. But only about 30 to 40% of their users consume Wireless Data. Hence they do offer specific plans for their Voice-only users as well. The years 2017 & 2018 were periods of adjustment for these operators as well as their customers. Almost all of them have shifted to these newer Unlimited Plans or Voice-only plans, resulting in massive drops in ARPUs for these incumbent operators. Bharti Airtel's ARPU for June 2019 stood at Rs.129 per month, which is the best amongst all these operators. Vodafone-Idea's ARPU stands at just Rs.108 per month, the lowest amongst the 3 operators.The significant difference in ARPUs of Airtel and Vodafone-Idea clearly suggests that Airtel has better managed to upgrade it's users to the newer tariff plans and a higher proportion of Airtel users are using it as their Primary sim, compared to that of Vodafone-Idea.

The significant drops in ARPU of the incumbent operators has happened alongwith huge increase in Average usage per customer. The average Data usage per 3G/4G Data customer per month has shot up to about 10 or 11 GB per month. Even the average voice usage has jumped to over 650 minutes per user per month. After falling for several quarters since middle of 2016, the ARPUs of Airtel and Vodafone-Idea have finally started improving over the last couple of quarters. This increase is because of increase in number of 4G users, which are consumers of Wireless Broadband services. Both these operators will

now focus on upgrading their 2G/3G users to 4G networks. Currently only 26% of Vodafone-Idea's total users are on it's 4G network, while the proportion for Airtel is at 34%. Hence both operators have huge scope of improvement here. Both of them will be aiming to have 150 million users each on their 4G networks by the middle of 2020. This will help them improve their ARPUs by atleast 10 to 15%.

Tariff Increases: I think the tariff increase will depend on the capacity congestion on Reliance Jio's network. The operator continues to add millions of new users every month, but there is not proportionate increase in it's traffic handling capacity. This is certainly affecting it's quality of service in many regions. I myself was a Jio customer from May 2016 to June 2019. But I faced huge issues in terms of slow Data speeds for many months at my place, before I finally ported out to Idea 4G. I am sure there will be many more people like me who might be porting out of Jio because of poor Data speeds at their place. I don't know what Jio's management has in mind, but I would certainly have considered reducing the Data usage limits on the existing plans and introduce newer plans for those requiring higher usage at slightly higher price points. This should help improve quality of service for Jio and also boost it's profitability.

Any tariff changes done by Jio will be quickly reciprocated by Airtel and Vodafone-Idea. Even a 5 or 10% increase in prices of existing plans will do wonders to improve the financial health of these struggling operators. Now the BIG Question is: When will we see some increase in tariffs? I think that day is not very far. We could see first signs of tariff increases anytime in the next 6 to 8 months. By then Jio will be much closer to it's target of having 400 million users on it's 4G network. Let's wait & watch. But I would certainly expect and like to see the ARPUs of all these 3 operators stabilise in the range of Rs.125 to 150 per month. This will help them make some money and also allow them to offer decent quality of service to their users.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

What next for Vodafone Idea?

Vodafone-Idea announced it's Q1FY20 Results last week, where it reported a small de-growth Q-o-Q in Total Income. And the market punished the stock with a collapse of over 25% the very next day. Bharti Airtel announced it's Q1FY20 Results this week, where it reported a small increase Q-o-Q in it's Revenues from India Mobile business. And the market rewarded it with a big 7% jump in share price the very next day.

At yesterday's closing price of Rs.6.35 per share, Vodafone Idea Ltd's Market Cap stands at about Rs.18,250 crores. On the other hand, with a share price of about Rs.347, Bharti Airtel's Market Cap stands at about Rs.1,78,000 crores, which it nearly 10 times that of Vodafone Idea Ltd. Isn't this a ridiculous situation?

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I know that Bharti Airtel is not just about India mobile business. It has operations in Africa and few other South-East Asian countries. In India too it has presence in many other telecom & media related businesses, which helps it de-risk it's growth dependence on the India Mobile business. But if we look at the numbers per se, Bharti Airtel's Consolidated Total Income is less than 2 times that of Vodafone Idea. Even it's EBITDA is just about 2.2 times. Then why is the Market Cap nearly 10 times. If we consider Bharti Airtel's growth outperformance compared to Vodafone Idea over the recent couple of quarters, it would be fine to give Bharti Airtel some valuation premium. A Market Cap of 3 or 4 times that of Vodafone Idea would have been fine, but not 10 times.

I am not saying that Bharti Airtel is expensively valued. I am saying that Vodafone Idea's valuations have reached ridiculously low levels. How can the market ignore the fact that Vodafone Idea still has over 300 million active subscribers and now after combining forces, it has the largest pool of liberalized spectrum amongst all the Mobile operators in India. Since the last 6 to 8 months, Vodafone Idea has been working on integrating it's network & spectrum resources. With nearly 2,00,000 towers in use, it will take Vodafone Idea another 8 to 12 months (or little more) to complete the network integration task. But once done, Vodafone Idea will have Data traffic handling capacity far higher than both Airtel & Jio.

Since the month of November 2018, when Vodafone Idea actually started working on integrating the networks of Vodafone India and Idea Cellular, it has been far less aggressive on the marketing & advertising front. It's first priority was to take down equipment from overlapping regions, which would have helped it save on operating costs substantially. And the time lag between taking down one set of equipment and then combining the spectrum resources on the other set of equipment, definitely must have resulted in drop in quality of service for subscribers of both Vodafone & Idea in those regions. Which in turn would have resulted in drop in subscribers and revenues from those regions.

By the end of June 2019, Vodafone Idea is said to have already removed one set of equipment from nearly 38,000 of the nearly 73,000 overlapping sites/locations. I am sure that the company will try & integrate it's spectrum resources at the earliest on towers that are serving high-population density regions or high-revenue generating regions. This will boost it's network capacity first in areas that matter the most. I am expecting Vodafone Idea to finish launching it's integrated network in all urban areas by the end of Q3FY20. Once it covers more than 50% of the urban areas or high-traffic areas, with it's Integrated network, Vodafone Idea will get more aggressive with it's marketing & advertising activities. It's main focus then will be on increasing it's 4G subscriber base count.

As we can see from the charts alongside, Vodafone Idea started falling behind Bharti Airtel in terms of 4G subscriber base count from Q3FY19 onwards. That's when the company started working on shutting down duplicate network sites & then integrating spectrum resources. Q4FY19 and Q1FY20 were expected to be the worst affected. Now that pain period is over. From Q2FY20, the company will start seeing improvement in network performance, region-by-region, which will result in improvement in 4G subscriber and Data traffic growth. In fact I won't be surprised if Vodafone Idea starts outpacing Bharti Airtel on these two counts from Q3 or Q4FY20 onwards, mainly on the back of wider 4G coverage and higher Data handling capacity, by then. It will be a very interesting battle and I am expecting it to start in a true earnest from Q3FY20 onwards.

Both Airtel as well as Vodafone-Idea would like to have 50% of their total subscribers, i.e. about 150 million users, upgrade to 4G services by the middle of next year. Airtel currently leads with 95 million 4G subscribers as compared to 85 million for Vodafone-Idea. But it will be very interesting to see which one of the two reaches 150 million 4G subscribers mark first or which one of the two is leading by the end of June'2020. I would like to place my bets on the dark horse, Vodafone Idea. Let's see if my estimates & expectations do turn out to be true.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Telecom Status Report: VLR numbers at the end of May'19

TRAI's report on Subscriber numbers at the end of May'19 is out. The numbers for Top-3 players, which together account for about 90% of the market-share, have progressed on expected lines. Reliance Jio continued to lead the charge with addition of 8.1 million subscribers in May'19. Bharti Airtel lost 1.5 million, while Vodafone Idea lost 5.7 million subscribers during the month.

The bigger news that grabbed the headlines was that Reliance Jio has now overtaken Bharti Airtel to become the No.2 player in the Wireless telecom industry, in terms of Total Subscribers. Reliance Jio's Total Subscriber count has reached 323 million, compared to Bharti Airtel's 320 million at the end of May'19. This is something that was expected to happen sooner or later. Reliance Jio is expected to topple the current No.1, Vodafone Idea, sometime before the end of end of this year.

But if we look at the Active Subscriber base count, i.e. the VLR base of each of these three operators, Bharti Airtel is still very comfortably placed in the No.2 spot, with 320 million active subscribers. It lost 4 million Active subscribers during the month. On the other hand, Vodafone Idea continued to lose Active Subscribers at a faster pace. After the big slump of 26 million in April'19, Vodafone Idea saw it's Active users base drop by another 8 million during May'19. It's lead over Bharti Airtel is now just 14 million.

At the same time, Reliance Jio's Active users base increased by a mere 3 million, compared to the 8 million of Gross additions it did. It still trails the Top-2 by a good margin, with an Active subscribers base of 268 million. If the current trend continues for a few more months, Bharti Airtel will become the No.1 player toppling Vodafone Idea, maybe in another 2 or 3 months, well before Reliance Jio catches up with these 2 and overtake them.

Vodafone Idea seriously needs to ramp up it's Integrated network rollout to more circles and simultaneously start with wider marketing campaign. Since it is currently focusing on the Network rollout part, it has stopped Advertising it's brand & services on a large scale. This is clearly hurting the operator's numbers month after month. The operator is said to have completed the Integrated network rollout, which is expected to have much larger Capacity & Speed, in about 10 circles. Vodafone Idea is expected to complete the rollout across the country by the end of this year.

Bharti Airtel has been Advertising it's brand & services very aggressively, which is helping it gain 4G subscribers month after month, though at a pace slower than Reliance Jio. Industry reports suggest that a major portion of Reliance Jio's subscriber additions are happening for the Jio Phone subscribers, which are actually low-revenue subscribers.

We will get more details on each operator's performance in their Quarterly Results presentations this month.

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.

Voda-Idea merger: Bigger threat for Bharti Airtel than Reliance Jio

The Vodafone-Idea Cellular merger has finally been formally announced with details of the proposed transaction. In simple terms, Vodafone's entire India business (including it's Mobile operations, recently acquired You Telecom, it's WiFi JV Firefly, M-pesa India business, etc., excluding only it's 42% stake in Indus Towers) will be merged with the listed Idea Cellular Ltd. Idea Cellular's Equity Capital will double from current level of about Rs.3600 crores, as equal number to the existing shares, will be issued to Vodafone, making the latter 50% owner of the Listed Company. Obviously the shareholding of all Idea Cellular's existing shareholders will get diluted by half due to this transaction. Aditya Birla Group's (AB Group) shareholding will drop to about 21.1%. AB Group will pay Rs.3874 crores to Vodafone to acquire 4.9% of the merged entity (let's call it Voda-Idea for the time being), to bring it's own shareholding to 26%. This transaction values Voda-Idea at about Rs.79,000 crores or about Rs.110 per share. This transaction will also give AB Group a Call Option to acquire another 9.5% stake in Voda-Idea at Rs.130 per share, within 4 years of the merger deal closure. If AB Group does exercise this Call Option, it's stake in Voda-Idea will be equal to that of Vodafone. And if it does not exercise the Call Option, even then Vodafone will not be able to enjoy the Voting Rights on the excess stake and the latter will have to divest the excess stake over the following 5 years, i.e. between the end of 4 years and end of 9 years from the merger deal closure. My guess is that AB Group will certainly shell out the money and buy the 9.5% stake from Vodafone well within the 4 years timeframe.

Everyone here knows that this merger will make Voda-Idea the largest Telecom Company in India surpassing Airtel's numbers by a significant margin. Be it in terms of Revenues or Subscriber base or EBITDA or even Profits, Voda-Idea is expected to be ahead of the current No.1 Telecom Company. I won't talk precise numbers here as they keep changing every month and in the current super-competitive transformative environment, the numbers will definitely change dramatically even in the short term. I would rather focus my article on highlighting the points that haven't been highlighted in other reports/articles.

The last 6 months have been rather grueling for the entire India Telecom Sector. The Free Voice Calling & 4G Internet service offered by Reliance Jio since September of last year, has suddenly shifted a substantial portion of network usage from all other operators to the new comer. Even though all the existing operators tried hard to retain usage from it's existing customer base by aggressively slashing prices, not one must have been left unscathed by the Reliance Jio onslaught over the last 6-7 months. But the rapid usage shifting momentum is now coming to an end by this month-end. From 1st of April'2017, the fight will be fought based on aggressive tariffs and coupled with superiority of network coverage, especially that of 3G/4G networks. Reliance Jio has already announced it's aggressive tariffs and it's intent to more than exceed the packages offered by any of the existing operators from time-to-time. Even on the coverage front, Reliance Jio's 4G-only network already is way ahead of 3G/4G coverage of all the existing operators and is infact trying to match the 2G network coverage of all existing operators across the country, by the end of this year. This is where the existing operators are going to face the biggest threat. For the initial couple of years, the migration from existing operators to Jio will be more of an Urban phenomenon, where people have started upgrading their handsets to 4G with VoLTE devices. But once Reliance Jio's network reaches most of the villages across India, the operator will definitely look to entice the population there with some attractively priced 4G with VoLTE devices and cheaper & superior Voice & Data services. This could happen once Reliance Jio growth momentum from Urban areas slows down substantially and it has excess capacity to cater to more traffic.

Until now, it was Bharti Airtel who was expected to be the strongest competitor to Reliance Jio, as it held 3G as well as 4G spectrum across all 22 circles and also had the strongest balance sheet to invest in further Capex for network roll outs. Individually both Vodafone & Idea too had the capability to offer either 3G or 4G service across all 22 circles or nearly all circles. Each of these three operators, i.e. Bharti Airtel, Vodafone and Idea, have their own 2G network across the country with about 95% or more population coverage, something like what we call Blanket Coverage. But their 3G or 4G coverages are rather patchy as the initial rollout is designed to cover areas of higher population density, i.e. areas of high usage. But it does leave several areas even within large cities without proper network signal. This is where Voda-Idea will have a tremendous advantage over Bharti Airtel. There will be thousands of cities & towns across India, where both Idea as well as Vodafone will have 3G and/or 4G network present. In all such locations, they can combine the spectrum frequencies together and beam the signal from single set of equipment, instead of having 2 sets of equipment doing the same job in the same area. The freed up equipment could be re-located to other areas in a way to be able to offer Blanket Coverage of 3G/4G signal to residents of all those cities & towns. This exercise alone could boost capacity as well as coverage substantially for Voda-Idea's 3G/4G networks before they have a need to start buying new equipment. Apart from doing the Equipment-Relocation exercise (which could also bring down their Recurring Operating Costs for Voda-Idea by a significant 10% or more), they will need to further extend their 3G/4G networks to even cover all the major highways and also all rural areas where they already have their 2G network present. With large spectrum resource pool and common strategy & planning, they can do the network roll outs much faster as well as efficiently. I am pretty sure that Voda-Idea will be able to offer Blanket Coverage of 3G/4G signals across all 22 circles to a much higher percentage of population than Bharti Airtel, by the end of 2018 or early 2019.

With higher amount of Spectrum Resources, alongwith larger Data Center Capacity and Fiber Optic Cables and wider reach of it's 3G/4G network, Voda-Idea will certainly be more aggressive than Bharti Airtel in it's attempt to attract customers from competitors. The first thing that Voda-Idea is expected to do is streamline their tariff plans across all 22 circles. The realignment & recalibration of Network equipment across so many different locations will be a very lengthy exercise and may not start until the Merger proposal gets all necessary regulatory & legal approvals. Till that point the two operators may start with Joint planning of network roll out in different circles, based on individual strengths in each circle and have Intra-Circle Roaming provisions in place to allow users of each other to use either of the networks. For eg: In circles like Mumbai, Delhi, Kolkata and Tamil Nadu, where Vodafone is strong with 3G as well as 4G presence, but Idea's presence is limited, Idea customers will be able to use the former's network for 3G or 4G service. Similarly, Idea will be able to offer 3G or 4G service to Vodafone customers for circles like Kerala, Maharashtra, Madhya Pradesh and Andhra Pradesh. The regulatory & legal approvals for the merger will take a minimum of 12 to 15 months to complete. Once it passes all the hurdles and the formal merger is completed, Voda-Idea can then rapidly look to combine Spectrum Resources and re-calibrate network equipment and relocate duplicate sites to boost network reach & capacity within those respective circles. At the same time the back-end Data Centre & IT System capacities will be combined to improve planning & efficiencies. All this will take 12 to 24 months to be put in place across all 22 circles. Hence the full benefits of the Merger will be seen sometime only in the year 2019 or 2020. By then we can expect Voda-Idea to have Blanket Coverage of 3G/4G network signals for more than 90% of India's population across all 22 circles. That could also be the time when the operators could start shutting down 2G networks and use the efficient 900 MHz spectrum band and additional 1800 MHz band spectrum for 4G or maybe even 5G service at that point. Yes, I seriously think that days of 2G technology are numbered. Year 2017 could be the start of the decline of 2G network usage as more & more devices are 3G/4G capable. The percentage of Smartphones active on the mobile networks is rapidly approaching the 50% mark with almost all of them being atleast 3G capable and nearly a third of them being 4G capable. With proliferation of 3G/4G networks in more & more rural areas, I am sure that people in those regions too will look to upgrade to 3G/4G capable devices. At the same time device manufacturers are bringing cheaper & cheaper devices capable of being used on 3G/4G networks. Hence the decline of 2G networks usage will pick up pace from 2018 and before the end of 2019, we will definitely hear about operators planning 2G network shutdown in various regions and use the freed up spectrum for 4G technology. In order to do this an operator will first need to have Blanket Coverage of 3G/4G network in place in all those regions. Here I think Voda-Idea will be in a much better position when compared to Bharti Airtel by the year 2019.

Telecom: Dec'16 Quarter AGR numbers - Who lost how much??

Soon after Reliance Jio's 1st September'16 announcement of commercial launch on 5th September'16 with Welcome Offer, I had presented my estimates expecting a drop of anywhere between 5 to 10% in Total Revenues compared to June'16 quarter numbers. I had also mentioned that the June'16 quarter numbers will continue to remain a benchmark for Quarterly Revenues for most operators for a considerable amount of time. We now have the December'16 Quarter AGR numbers for all Telecom operators in India. While most operators have reported a drop within my expected range, some smaller operators have even exceeded my expectations with over 10%. Let's have a quick look at the Quarterly Progress of AGR numbers for the Top-6 Telecom Operators in India, via the following charts:

Amongst all the Telecom Operators in India, only the Top-3 were posting a healthy rate of growth in Revenues until June'16, which is a well-known fact. It was also expected that the Top-3 operators (Airtel, Vodafone & Idea) will be the least affected by Reliance Jio's onslaught. Hence it becomes even more interesting to check whether these expectations have been met or not.

Let's start with India's No.1 operator: Bharti Airtel, which reported an AGR of Rs.12496 crores in Dec'16 quarter. This is a 8% Q-o-Q drop and 10.6% drop compared to the peak hit in June'16. In fact Airtel's Dec'16 number is nearly 2% lower than even Dec'15 number. For Bharti Airtel, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Karnataka (Rs.223 crores), Bihar (Rs.163 crores), Rajasthan (Rs.133 crores), J&K (Rs.126 crores) and Delhi (Rs.106 crores). Punjab is the only circle where Airtel's Dec'16 AGR is slightly higher than it's June'16 AGR. The Top-5 circles in terms of largest Percentage Drops between the two quarters are: J&K (64.8%), Kerala (20.5%), Bihar (14.8%), UP-West (14.4%) and Rajasthan (14.2%). Airtel's largest circle in terms of AGR continues to be Karnataka despite the 13.9% drop in AGR from June'16 level. The Best-5 circles for Airtel, who have reported least change in AGR since June'16 are: Punjab (+2.1%), North-East (-3.5%), Kolkata (-4.8%), Tamil Nadu (-5.2%) & Andhra Pradesh (-5.9%).

Vodafone India reported an AGR of Rs.8305 crores in Dec'16, a Q-o-Q Drop of 5.1% and a drop of 7.8% compared to June'16 AGR. Vodafone India's AGR drop is certainly a better performance compared to Bharti Airtel, despite having lesser 4G coverage compared to the latter. For Vodafone India, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Delhi (Rs.130 crores), Gujarat (Rs.105 crores), UP-East (Rs.100 crores), Maharashtra (Rs.74 crores) and UP-West (Rs.36 crores). The Top-5 circles in terms of largest Percentage Drops between the two quarters are: Delhi (16.2%), Himachal Pradesh (15.5%), Madhya Pradesh (14.6%), Haryana (12.9%) and UP-East (12.7%). The Best-5 circles for Vodafone, who have reported least change in AGR or reported Growth since June'16 are: North-East (+4.1%), Karnataka (+3.5%), Kerala (+2.2%), J&K (+1.8%) and Andhra Pradesh (-2.3%). Gujarat circle continues to be the highest AGR-contributing circle for Vodafone India, but is closely followed by Tamil Nadu & Maharashtra circles.

India's No.3 operator Idea Cellular reported an AGR of Rs.6958 crores in Dec'16, which is a Q-o-Q drop of 4.9% and a drop of 10.8% compared to June'16. For Idea Cellular, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Madhya Pradesh (Rs.145 crores), Maharashtra (Rs.122 crores), Kerala (Rs.109 crores), UP-West (Rs.91 crores) and Andhra Pradesh (Rs.87 crores). The Top-5 circles in terms of largest Percentage Drops between the two quarters are: J&K (33.7%), Himachal Pradesh (26.9%), Bihar (17.2%), Haryana (16.1%) and Madhya Pradesh (15.4%). The Best-5 circles for Idea Cellular, who have reported least change in AGR or reported Growth since June'16 are: Kolkata (+45.9%), Tamil Nadu (+7.6%), Delhi (+6.8%), Karnataka (3.8%) and West Bengal (-2.9%). The Maharashtra circles continues to remain the largest AGR-contributing circle for Idea Cellular by a large margin.

BSNL+MTNL combine is probably the only operator which has reported no Q-o-Q drop in AGR and an improvement in AGR in Dec'16 when compared to June'16 AGR number. The PSU combine reported an AGR of Rs.3869 crores in Dec'16, which is about 4.9% higher compared to June'16 number. The volatility in Wireline Revenue numbers for BSNL & MTNL seems to have helped the operators to report an improvement in AGR for Dec'16. The spike in March'16 AGR followed by a sharp drop in June'16 number is proof of this phenomenon. Hence there is no point in studying the circle-wise numbers for BSNL & MTNL too seriously. One thing is quite certain, BSNL & MTNL combine is slated to report over 10% drop in AGR for FY'17 compared to FY'16 numbers.

Tata Teleservices was the biggest loser in the October-December'16 quarter in terms of number of subscribers lost. During the quarter Tata Tele lost nearly 8% of it's active (VLR) subscriber base or 3.65 million users. But despite being much much smaller than both Aircel & RCom in terms of number of Subscribers, Tata Tele's AGR for Dec'16 is still nearly 25% larger than Aircel and nearly 125% larger than RCom. This speaks volumes of the poor quality of Aircel & RCom's subscriber base. Tata Tele's Dec'16 AGR of Rs.2209 crores is about 12.7% lower Q-o-Q and about 15.7% lower compared to June'16 AGR. Tata Tele's AGR from 15 out of 19 operating circles has reported a double-digit percentage drops in Dec'16 compared to June'16. It has lost big time even in it's 3G circles. This alarming pace of revenue decline looks extremely scary. Tata Tele

needs to take some swift action towards consolidation or else it will have to die a very painful death. Operators like Tata Tele, RCom & Aircel can come together and offer 3G service in nearly all circles across the country. A good quality 3G service with aggressive pricing can certainly offer a good alternative for several price conscious subscribers across the country.

India is seeing some big consolidation moves in the Telecom sector, something which I had predicted over a year ago. Bharti Airtel has already gobbled up Videocon's Band-3 spectrum, Aircel's Band-40 spectrum and Telenor India's entire business is also being taken over. But the bigger consolidation move is that of Vodafone India with Idea Cellular, which could potentially create India's largest Telecom player, atleast for the time being. Even though the operators will continue to face pressure on Topline, this consolidation will help them rationalise their network resources and save atleast 20 to 30% of their operating costs. The combined entity will also be able to offer wider & stronger 3G/4G coverage across the country to combat competition from Reliance Jio as well as Bharti Airtel.

March'17 quarter is going to be even more painful for all telecom operators, thanks to the continued Free Services of Reliance Jio till 31st March'17. The real competition will start from April'17 onwards when Reliance Jio will finally start charging it's customers for availing it's services. But the new 4G-only operator is expected to remain extremely aggressive with it's pricing in it's effort to pile up large number of paying subscribers in the coming months. The AGR numbers reported by all existing telecom operators in June'16 will continue to remain the peak values for most of them for atleast another 4 to 6 quarters, if not more. I am expecting Reliance Jio to start with a AGR market share of nearly 15% in it's very first Revenue-Reporting quarter of April-June'17. And it will continue to build on it from there with an aim to be the No.1 player in another 3 to 4 years time.