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.

Green-shoots for Vodafone Idea in latest VLR subscribers Data

TRAI recently published the Subscriber base Report for all Telecom operators in India for the month of June'19. While it was widely reported that Airtel & Vodafone-Idea together lost over 4 million subscribers and Jio gained over 8 million subscribers in June'19, there is a lot more that one needs to know. Vodafone Idea alone lost 4.1 million subscribers in June'19, while Airtel's loss was negligible at less than 30,000 subscribers.

The above numbers are for Gross Subscriber base. I don't give too much importance to the Gross Subscriber numbers. The more important numbers to look at are the VLR (Visitor Location Register) subscriber numbers, i.e. the subscribers which were actually Active on the operator's network. This number is what matters more as these Active users are the ones that will generate Traffic as well as Revenues for the company.

Vodafone Idea has been consistently losing VLR subscribers ever since their merger took place in August'18. From over 400 million VLR subscribers in September'18, it is down to 322 million in June'19. A major chunck of this number will be the subscribers who were holding sim cards of both operators before the merger. Another larger number of subscribers leaving the network will be those who were using it as a Secondary sim, only for Income calls, and were recently forced to do minimum recharge of Rs.35 every 28 days to continue availing service.

Till March'19, Vodafone Idea's overall VLR % was over 93, which is a very healthy figure and also in the normal range for both Vodafone India and Idea Cellular, before merger. But over the last 3 months, i.e. by June'19, it has dropped to just 84%. Apart from the above 2 reasons, this drop in VLR % could also be due to the rapid Network Integration work that is going on at hundreds of towers at any given point. Service disruption for some time for several subscribers at so many locations will also affect the VLR numbers for the operator.

If we look at the overall change in VLR numbers for Vodafone Idea since March'19, the operator lost 9.1 mn subscribers in March'19, another 26 million in April'19, 8.6 million in May'19 and 11.2 million in June'19. While these numbers clearly suggest that Vodafone Idea continues to lose VLR subscribers at a rapid pace, there are lot of things worth noting when we look at Circle-wise VLR subscriber number changes. Last night I sat down to note down the number of circles that are losing or gaining VLR subscribers, in different Ranges like 0 to 0.2 million, 0.2 to 0.5 million, 0.5 to 1 million, 1 to 2 million and >2 million. Some very interesting developments can be noted from this Data that I have collated.

Vodafone Idea had reported a loss of VLR subscribers in all 22 circles for the months of March and April'19. Vodafone Idea had lost over 26 million VLR subscribers in April'19, when 11 circles had reported a loss of over 1 million users each. In May'19, things were much better with just 1 circle reporting a loss of over 1 million users and 1 circle even reported a gain of VLR users. The overall loss of VLR users was moderated to 8.6 million in May'19. But the number is again higher at 11.2 million in June'19. But the culprits are just 2 circles: Bihar (4 mn loss) and Andhra Pradesh (2.2 million loss). Apart from this, things seem to be improving for Vodafone Idea as a total of 6 circles have reported a Gain of VLR users during June'19. All these 6 circles (Himachal Pradesh, Kerala, Madhya Pradesh, Mumbai, Punjab and UP (West)) have reported a decent improvement in VLR %, resulting in a gain of VLR subscribers even when their Gross Subscribers numbers are down. What this suggests is that as Vodafone Idea's network integration work results in an improvement in Network's performance in terms of Coverage, Capacity & Speed, we could see more & more circles reporting positive change in VLR % and hence a gain of VLR users, in the coming months.

My take is that the worst in terms of loss of VLR subscribers is behind for Vodafone Idea. Things are set to improve in the coming months. In fact these are very interesting times for the company as we could start seeing first signs of benefits of their Integrated large-capacity network sometime soon, possibly from September'19 onwards. I will keep updating this Data as and when TRAI publishes the Subscriber numbers for every passing 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.

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.

What's the possible future of Vodafone Idea Ltd's share price?

Idea Cellular Ltd, which was the third largest mobile operator in India until August'2018, was seeing it's Revenues fall and Profits disappear after the onslaught of #RelianceJio. The same was the case with all other mobile operators, including Bharti Airtel and Vodafone India. #BhartiAirtel made some clever purchases during the distress in the sector and became self-sufficient in terms of All-India spectrum for 4G services. Vodafone India and #IdeaCellular were not that swift in decision making and were left with no choice but to merge their operations in order to become stronger and survive the #Reliance #Jio Tsunami.

After nearly 18 months of starting the procedure, the unlisted #VodafoneIndia merged into the listed #IdeaCellular to form Vodafone Idea Ltd. on 31st August 2018. This merger is expected to give them several benefits. On one hand, they will be able to combine their Spectrum Holdings and offer much larger traffic-handling capacity to their combined customer base. This will also allow them to roll-out 4G services across India at a much faster pace and also re-farm some of their precious 2G/3G spectrum for 4G, which is the revenue driver for all mobile operators currently. 2G & 3G are both dying technologies and hence it will be a waste to keep some of the valuable spectrum occupied for offering 2G/3G services for long.

Apart from the Spectrum and Network combining part, there are huge benefits to be had by merging their IT & Billing systems, Sales & Marketing teams and even their Administrative teams. There will be huge Operating Cost savings in the Tower tenancies. Previously both #VodafoneIndia and #IdeaCellular were two different tenants on the same towers or same areas. Now with their Networks getting combined over a period of time, these duplication of tenancies will be avoided and the merged entity will be able to save hundreds of crores every quarter in just the rental payments to tower companies. There will be some penalties to be paid to the tower companies in the initial few quarters for cancellation of rental agreements prematurely, but this will translate into substantial savings in the coming years.

Now lets look at the way the share price has behaved over the last 1 year:

In May'2018, when it was just Idea Cellular Ltd., the share price was hovering a little over Rs.60 mark. But by the time the merger actually became effective on 31st August 2018, the share price had dropped below the Rs.50 mark. It dropped further as the #Q2FY19 results were announced (which included numbers for Idea Cellular Ltd for first 2 months and Vodafone Idea Ltd for the month of September 2018). Since then the share price hovered between the Rs.30 to 40 range till March 2019.

In March 2019, #VodafoneIdea announced a Rights Issue to raise fresh capital of Rs.25,000 crores. Everyone was expecting the company to offer the Rights Issue to be at a price of around Rs.23 to 25 per share, which was at a discount of about 20 to 30% to the then share price. But Vodafone Idea Ltd. shocked everyone by pricing the Rights Issue at just Rs.12.50 per share. What this meant is that there will be much higher level of dilution to the company's Equity base as it will be issuing nearly 2000 crore fresh shares to raise Rs.25,000 crores in fresh capital.

Before the announcement of Rights Issue, the Market Cap of Vodafone Idea Ltd stood at around Rs.26,200 crores, when the share price was around Rs.30/-. Today the share price is trading at just over Rs.13/-. With the expanded Equity base, the Market Cap of the company now stands at about Rs.37,500 crores, which is an increase of just over Rs.11,000 crores. Remember that the company has raised Rs.25,000 crores in fresh capital via the Rights Issue. Hence ideally, the company's Market Cap should have increased by approximately that much value. The Rights Issue adjusted price, from the pre-Rights Issue price of Rs.30, should have been around Rs.17.50 to 18 per share. That means the price has seen further correction of another 25%.

Now lets look at the company's Quarterly Financial Performance. As we can see from the Quarterly Total Income chart alongside, #IdeaCellular Ltd. saw it's Revenues slide from levels of about Rs.9500 crores in March 2016 to about Rs.6000 crores by June 2018. That means in a matter of about 2 years, the company had seen it's revenues drop by over 35%. In the September 2018 quarter, #VodafoneIndia 's revenues were added to Idea Cellular's for the last one month only. Hence the combined Vodafone Idea Ltd's revenues saw a small jump to about Rs.7900 crores. From December 2018 quarter, we can see the full numbers for the combined entity, which is currently stable at just under Rs.12000 crores. With most of the intense competition period behind us, things are expected to get better for all the leading telecom companies now, since the Top-3 players hold over 90% market share and No formidable player expected to enter the market now.

With every passing week, #VodafoneIdea is rapidly working to increase it's 4G network footprint and launch integrated network, instead of having 2 different operating networks for #Vodafone & #Idea brands. By the end of 2019, #VodafoneIdea is expected to complete more than 75% of the Network Integration work. Network Integration is expected to translate into better quality of service to all it's customers. Hence as the Network Integration coverage increases progressively, the exodus of customers from Vodafone & Idea to either Jio or Airtel, will stop and the company could start seeing inflow of new customers. Plus there will be increase in the number of it's own customers upgrading from 2G or 3G use to availing 4G service. This should help in bringing back some amount of Revenue growth for Vodafone Idea Ltd in the coming quarters.

In the chart alongside, we can see the Quarterly progress of Idea Cellular's ( and then Vodafone Idea's) EBITDA since March 2016. Idea Cellular was managing at EBITDA of over Rs.3600 crores (EBITDA margin of over 36%) on it's own back in March 2016. It saw a dramatic collapse to just Rs.800 crores by June 2018. Over the last 2 quarters, the savings from Operational synergies of #VodafoneIdea have started showing it's signs as the EBITDA has already increased to over Rs.1900 crores in March 2019. The EBITDA Margin stood at just over 16% for March 2019 quarter. I am expecting this to improve to about 25% by December 2019 or March 2020. That means the EBITDA figure is expected to improve further to about Rs.3000 crores by then. At that point the company will be generating some amount of Cash Profit. The Interest outgo for #VodafoneIdea stood at Rs.2946 crores in #Q4FY19. With fresh Capital infusion of Rs.25,000 crores during the current quarter, combined with ongoing CAPEX, we can expect the quarterly Interest outgo to remain in the Rs.2400 to 2800 crores range for the next few quarters.

Conclusion:

For FY20, I am expecting #VodafoneIdea to report a Total Income of little over Rs.50,000 crores and an EBITDA of around Rs.11,000 crores, with a Cash Profit of about Rs.1000 to 1500 crores. Yes, the company will continue to post Net Loss as the Depreciation figure will continue to increase and could be around Rs.20,000 crores for the year. By the end of FY20, we could see slight reduction in Competitive Pressures due to the following reasons: Firstly, India's telecom market has now become a 3-player market with no major competitor expected to enter now. The most aggressive player, Reliance Jio, is expected to curtail it's aggression as it is close to achieving it's target of 400 million subscribers. And #Reliance #Jio itself is facing Network congestion in several parts of the country. Hence we can expect Reliance Jio to finally start hiking prices of all it's Unlimited Plans, anytime in the next 6 months. As and when this happens, it will be a very big positive for all the operators. Even if #RelianceJio increases the prices of it's plans by 5%, we could see the valuations of all the listed telecom players to increase by upto 20% quite easily.

In short, I think the worst is behind us in case of financial health of telecom operators is concerned. More so in the case of Vodafone Idea Ltd., which saw it's share price recently take a dip below the Rights Issue price of Rs.12.50/-. I am fairly confident that Vodafone Idea Ltd. will survive the current intense Competitive pressures and then start gaining strength by the end of FY20. From the current No.1 Rank, Vodafone Idea could drop a place sometime this year as it is losing market share in subscribers as well as Revenues, but it will still continue to be a formidable player in the Indian telecom market and might even start gaining market share by the end of FY20.

Telecom: Q4-FY'17 Analysis: BSNL is the surprise Winner.

It was widely expected that Q4-FY'17 will produce the worst Revenue numbers for all telecom operators as Reliance Jio had extended it's Freebie offer till 31st March'17. Reliance Jio started adding subscribers on it's 4G-LTE networks in a big way from latter half of Q2-FY'17. Hence Q1-FY'17 numbers will become the benchmark for pre-Jio era. The Top-8 operators (Airtel, Vodafone, Idea, BSNL/MTNL, Tata Tele, Aircel, RCom & Telenor) together generated Adjusted Gross Revenues (AGR) of Rs.40,089 crores in Q1-FY'17. From that point onwards, the Industry AGR numbers have been on a downward trend in each of the next 3 Quarters so far, reaching a number of Rs. 33,149 crores in Q4-FY'17. That means Reliance Jio has managed to pull down the Industry's Quarterly AGR by nearly Rs.7,000 crores or about 17.5%, over the last 3 Quarters.

How did Reliance Jio manage to make such a large impact even when it's Active Subscriber Base market share reached just about 8% by the end of March'17? That is because of 2 reasons: Firstly, these 8% subscribers shifted almost their entire Mobile (Voice as well as Data) usage to Reliance Jio from their Primary operator; Secondly, in an attempt to hold on to their precious customer base, the existing operators had to make big changes to their tariff plans and introduce many new offers to attract attention of existing as well as new subscribers. In fact many of the attractive offers from the Top-3 players (Airtel, Vodafone & Idea) were given only to new subscribers, which led to millions of existing mobile users buying new sim cards just to avail these special one-time offers. This boosted the subscriber numbers of these operators at a time when Reliance Jio was aggressively eating into their usage market share. Ofcourse most of these recently activated sim cards, purchased only to avail the special one-time offers, will soon be thrown away once the validity period of the offers expire.

Between Q1 and Q4-FY'17, all telecom operators (barring 2) have seen substantial double-digit percentage drops in their AGR numbers. The Top-3 percentage losers are: Aircel (31.5%), Tata Tele (28.4%) and Telenor (24.3%). Each of India's Top-2 telecom operators, Airtel & Vodafone, have seen their AGR shrink by 19.4% between Q1 and Q4 of FY'17. Idea Cellular too lost 17.9% of it's AGR, more than the Industry shrinkage of 17.5%. Surprisingly, two operators managed to buck the AGR shrinking trend: RCom and BSNL, but their stories are different. RCom's Q1-FY'17 AGR number of Rs.1274 crores was already lower by 33% compared to it's year ago number of Rs.1864 crores. It dropped another 25% to report a number of just Rs.968 crores in Q3-FY'17. But the company has managed to pull it back smartly to Rs.1270 crores in Q4-FY'17. Could this pull back be a result of it's association with Reliance Jio for 4G-LTE services? This will only be confirmed if RCom manages to maintain this number or improve further in Q1-FY'18. Coming to BSNL/MTNL, the PSU combine has managed to post a 7.6% increase in it's AGR numbers between Q1 and Q4 of FY'17, which is really a surprising performance. Even it's Q2 and Q3 numbers were quite stable and Q4 number has been an improvement on both. The charts above clearly show how Public Sector combine of BSNL/MTNL managed to maintain it's Quarterly AGR numbers throughout the 3 Quarters of Reliance Jio onslaught, even when none of the Private Sector players could not save themselves from 17% to 31% erosion in AGR numbers over the 3 quarters.

BSNL/MTNL have managed this strong performance even without 4G-LTE service offering. It just did the basics right. Firstly, the operator worked on improving it's 3G networks at various important urban locations. Secondly, it worked on reducing the monthly Wireline surrenders and managed to report an increase in Wireline customer base in March'17. If this trend continues, it will give further push/stability to BSNL/MTNL's AGR numbers in coming quarters. Thirdly, BSNL/MTNL surprisingly made some very swift moves to introduce new Data Plans for both 3G as well as Wireline Broadband services and marketed the same over various mediums, both at local level as well as National level. This seems to be working for the company. If BSNL continues to strengthen it's 3G network in semi-urban and rural areas as well, then it could certainly prove to be a strong challenger to Reliance Jio and the Trio of Airtel-Vodafone-Idea. With Reliance Jio finally making it's service chargeable during the current quarter of Q1-FY'18, it will be very interesting to see how the numbers pan out for different operators over the next few quarters.

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.

Telecom: Nov'16 Subscriber Additions.

Last month I had written about how the Subscriber addition numbers have progressed for the Top-3 Telecom operators between May'16 to October'16, i.e. a period including 3 months leading to launch of Reliance Jio's services and 2 months after the event. Bharti Airtel and Idea Cellular had reported a sharp increase in VLR numbers for the 2 months of September & October'16, with even Vodafone reporting modest increase in pace of additions. November'16 was the 3rd month since Reliance Jio's commercial launch in first week of September'16. The new entrant with a brand new 4G-LTE network, did face several issues relating to Call Connectivity with other operators during the first couple of months. With more & more Points of Interconnect being commissioned and the network being streamlined, the Call Connectivity experience from & to Reliance Jio's network experienced a sharp improvement with most calls getting connected within the first one or two tries.

By the end of October'16, Reliance Jio's Total Subscriber base stood at 35.6 million, out of which 33.4 million were active on VLR. During the month of November'16, Reliance Jio added another 16.2 million subscribers to it's Total tally, but it's VLR number increased by just 10.4 million. This meant that a portion of people who had taken up a Reliance Jio Sim during the initial euphoria period had stopped using it, possibly due to frustration from poor quality of service experience during the initial couple of months. With the quality of service improving, especially on the Call Connectivity front, many of them could again start using the network. Reliance Jio's VLR %, which has dropped to under 85% during November'16, could again improve during the months of December'16 & January'17.

Coming back to the progress made by the Top-3 operators on the VLR base front, it was always going to be interesting to see if they are able to maintain any kind of positive momentum, at a time when Reliance Jio is aggressively adding subscribers on it's 4G-only network with the attraction of FREE services. The VLR base numbers of Bharti Airtel & Vodafone India for the month of November'16, clearly tell us that the momentum is unsustainable. Each of the Top-2 operators had added nearly 1 million subscribers to it's Total tally during the month, but both of them have seen their VLR base increase number dip in the negative territory. Though the dip in VLR base is very small for November'16, there is the fear of the situation being worse in December'16, as most Reliance Jio users had reported a sharp improvement in the Quality of Service on the Call Connectivity front from the latter half of November'16. Even the Data Speeds on the new entrant's 4G network had improved from late

December'16 onwards. This positive change in the Quality of Service on Reliance Jio's network will certainly have repercussions on the network usage of all the other operators.

Idea Cellular is probably the only operator which has managed to post a decent positive change in it's VLR subscriber base during November'16 and continuing it's charge towards challenging Vodafone India for the No.2 spot in subscriber stakes. Over the 6 months upto November'16, Idea Cellular has managed to cut down Vodafone's lead over itself from 7.6 million VLR subscribers to just about 2.9 million. Idea Cellular could certainly be looking at dethroning Vodafone India from the No.2 spot in VLR subscribers ranking latest by March'17. In such a backdrop it becomes even more interesting to see if Vodafone's management manages to convince the Aditya Birla Group & Idea Cellular's management for an All-Stock merger between the two companies to create India's No.1 cellular operator with a sizable lead over Bharti Airtel. I had already mentioned in one of my previous reports a few months ago that Vodafone India & Idea Cellular will need to co-operate with each other to offer 3G & 4G services across all 22 circles, especially when Bharti Airtel had clearly made it's intentions clear a few months ago of not offering Intra-Circle-Roaming facility going forward as it is able to offer 3G as well as 4G services across all 22 circles on it's own network. A merger between Vodafone India & Idea Cellular will certainly make for a strong competitor, atleast on paper. But there are many issues that the two will need to take care of, especially in terms of effective shareholding of their respective Promoters/Investors and the management control / decision making. There are several potential benefits too in terms of realignment of network resources & ability of offer much wider 2G/3G/4G coverage. The Indian Telecom's market dynamics will certainly change if this merger goes through, especially in the face of the rise of Reliance Jio as a serious threat to the dominance of the Top-3 operators.

I have included Tata Teleservices' VLR base change chart above just to highlight the fact that it is losing VLR subscribers at a rapid pace since October'16. Between the two months of October & November'16, Tata Tele has lost nearly 3.4 million VLR subscribers, which is nearly 7 to 8% of the operator's Total VLR subscriber base. The rapid pace of drop in VLR subscribers base clearly suggests that Tata Tele has finally decided to pull the plug on it's CDMA operations as it must be getting increasingly unviable to continue the operations. CDMA network was more popular amongst Data hungry customers before the advent of abundant 3G/4G options at cheaper price points. Now with most leading operators offering good quality 3G/4G network with excellent Data speeds and very attractive price points, the users of the CDMA (Photon) services must be shifting their usage to a better option. We can expect some firm announcement from Tata Tele about closure of it's CDMA operations some time in the next few months. With network usage dropping continuously, there is no point for the operator to continue keeping the CDMA network alive for a long period. The company can certainly utilise those resources to enhance it's 3G services and even think of launching 4G services in a few circles where it has acquired Band-3 spectrum from recent auctions. In fact I am of the opinion that Tata Tele should even exit from many of the circles where it has very insignificant presence with 2G-only network and focus on strengthening it's network where it can offer 3G/4G services. A strong operations in about 9 or 10 circles will make more sense than Tata Tele's current 19-circles operations. Let's see by when more sense will prevail with the management of the company & they take some concrete steps towards rationalising it's operations or become a part of some M&A deal.

Bharti Airtel Q3 Numbers - Finer Details

I was anxiously waiting to have a look at Bharti Airtel's Q3 numbers last evening as this is the first quarterly result to have full impact of Reliance Jio's launch momentum. The numbers for Q2 only had partial impact due to Jio. And the numbers have turned out to be exactly as per my expectations. Ever since Jio's launch on 5th Sept'16, I had estimated a drop of between 5 to 10% in Revenues for both Bharti Airtel & Idea Cellular, when compared to their numbers for June'16 quarter. As it turned out, Bharti Airtel's Revenues from India Mobile services business has dropped just over 8% from Rs.15,053 crores to Rs.13,837 crores. Bharti Airtel's Consolidated Total Income is also down by 8.5% during the same period at Rs.23,416 crores. The drop in Non-India Revenues is mainly due to exit/mergers from a few markets in Africa and South-East Asia. Bharti Airtel's Non-Mobile India revenues posted some decent growth, which helped reduce the impact due to drop in Data as well as Voice Revenues from it's India Mobile business.

Getting to analysing the finer details of Traffic & Financial numbers of Bharti Airtel for October to December'16 quarter, it is very important to note that the impact on revenue flow for the operator due to Reliance Jio must not have been uniform for each of the 3 months. The impact must have been the smallest in October and the largest in December. Reliance Jio had about 16 million users at the start of the quarter, while it is estimated to have ended the quarter with about 70 million users. That means the 4G competitor added an average of about 18 million users every month. Also if we look at the overall user experience of Reliance Jio's services, it was pretty bad in most parts of the country during the first half of the quarter, with over 75% of the Voice Calls attempted from Jio numbers to non-Jio numbers failing to connect. Even the Data speeds on Jio's 4G network was quite patchy & inconsistent due to huge number of users abusing the network with full utilisation of FUP limits. Hence during the first half of the quarter, most Jio users must have required to recharge & use their primary mobile numbers, which must have been from one of the other operators (including Airtel). The user experience on Reliance Jio's network improved dramatically from the middle of November'16, when most Voice Calls to non-Jio numbers were getting connected on first or second attempt. Even the Data speeds became more consistent, though it was not as fast as expected, but fairly use-able. Hence the latter half of the Oct-Dec'16 quarter is when the older operators must have suffered the most slowdown in revenue flow due to Reliance Jio's Free services. Not just Data usage, but a substantial portion of Voice usage too must have shifted to Jio.

Have a look at the chart alongside, which shows the progress made by Bharti Airtel's Consolidated Quarterly Total Income since the December'13 quarter onwards. Notice the sharp slide after hitting a peak value of just over Rs.25,500 crores in June'16. The figure for December'16 quarter is even lower than that for June'15 quarter. That means the gains made by Bharti Airtel over 4 or 5 quarters upto June'16, have been wiped out in just 2 quarters. And things are expected to get even more worse for March'17 quarter as Reliance Jio's Free services have been extended till the end of March'17. At the current pace of revenue erosion, I am expecting Bharti Airtel's Total Income to fall to something around Rs.22,000 crores, if not lower, for the March'17 quarter. Airtel has managed to limit the damage to it's EBITDA via some smart Cost-reduction measures during the Dec'16 quarter. But there may not be too many cost-cutting avenues left as it cannot compromise much on the quality of service aspect. This erosion in revenues will stop only when Reliance Jio starts charging for it's services and we get to see some fair tariff-based & quality-based competition amongst all players.

Coming to Users & Usage statistics, this is probably for the first time since Wireless Broadband services over 3G/4G networks were launched, when Bharti Airtel has reported a Q-o-Q drop in number of 3G/4G users as well as the amount of GBs carried by it's network during the

quarter. The volume of GBs consumed by Airtel's customers was growing at a compounded double-digit Q-o-Q Growth rate until September'16. But it has seen a Drop of 3.5% during December'16. This drop in Volume, coupled with another 10.5% Q-o-Q drop in Rate per MB, meant that Bharti Airtel's Revenues from Wireless Data services have taken a hit of about 14% Q-o-Q. Bharti Airtel's Average Rate per MB has now dropped to just under 18 paise, which translates to about Rs.180 per GB. We all know that the Average Rates for most of the heavy Data consumers of almost all operators have now dropped to something around Rs.100 per GB or even lower. Hence I won't be surprised if Bharti Airtel reports an average Rate of around 12 to 14 paise per MB for the March'17 quarter. To compensate for this 25 to 30% drop in average realisation per MB, the volume needs to increase by a similar pace. But it certainly looks difficult in the current scenario and hence we can expect easily another 15 to 20% Q-o-Q drop (if not more) in Revenues from Wireless Data services for Bharti Airtel's India business for March'17 quarter.

Going by the way we have seen improvement in Reliance Jio's user experience since the start of the new calendar year, especially on the Data services front, it is very unlikely that a user of Reliance Jio will pay anything to other operators for availing Data services, atleast till the end of March'17. Most of the owners of 4G Smartphones across the country have already taken a Reliance Jio Sim, atleast as a secondary connection. There won't be much revenue coming to any of the incumbent operators for availing Data services. Operators like Airtel/Vodafone/Idea have been trying their best to entice buyers of new 4G Smartphones with Special Offers of something like 10 GB 4G-Data for the price of 1 GB or the latest offer from Airtel, which offers additional 3 GB 4G-Data every month for a period of 12 months on certain recharge plans, for users upgrading to 4G Smartphones until the end of February'17. All such efforts are being made with an aim to increase usage on their networks and maintain some decent level of ARPU from active users. 

At the same time, these older operators are aggressively trying to attract 2G & 3G users of smaller operators with competitive Voice &

Data tariffs. With intensifying competition from larger rivals with much wider network coverage & matching tariffs, survival will get more & more difficult for smaller operators. I think the shift is already happening at a healthy pace. But there is bad news for the incumbents here as well. There are rumours floating around that Reliance Jio is planning to launch 4G-VoLTE enabled feature phones at aggressive price points of under Rs.1500/-. This coupled with Unlimited All-India Calling & Roaming plans, Reliance Jio could start grabbing market share even in the feature-phone users space, which is still pretty large in our country. I am expecting the launch of the 4G-VoLTE enabled feature phones to align with the point when Reliance Jio starts charging for it's services. This launch will only mean more trouble for incumbents and other smaller operators.

For the December'16 quarter, Bharti Airtel did manage to post some decent growth in Voice minutes. But this growth was powered by the surge in Incoming Calls from Jio network. This resulted in lowering of average realisation rate per min more than the increase in Volume, hence resulting in a small drop in revenues from Voice services as well. Until now most Jio users are using their Jio Sim as a secondary connection. As and when large number of users start porting their primary numbers to Jio network, the Voice service revenues for all existing operators will start getting impacted even more. The Q3-FY'17 results for Bharti Airtel have now given us a fairly good idea of the kind of pain all operators are expected to go through over the next few quarters. Yes, things are expected to remain painful for not just one or two quarters, but for atleast 4 to 6 quarters. We can expect things to stabilise & bottom out Bharti Airtel & others, sometime by the end of 2017 and start improving from first half of 2018 onwards. All eyes are now on Idea Cellular's Q3 numbers. Story is expected to be similar for India's No.3 operator. But it doesn't have the cushion of Non-Mobile services that Bharti Airtel has. Hence Idea Cellular will most probably report slightly larger drops.