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.

Bharti Airtel vs Idea Cellular (India Mobile business progress comparison) post Q2-FY'17.

As we all know that Idea Cellular's business is purely it's India Mobile business, but in case of Bharti Airtel, it's business includes not just it's Mobile business in 18 countries, but also smaller India businesses like Digital TV, Home Broadband, Enterprise Solutions, etc. For Bharti Airtel, it's India Mobile business contributes nearly two-thirds of it's Consolidated Revenues and possibly a higher proportion of it's Profits. Hence the good or bad performance of it's India Mobile business does have a substantial impact on the company's overall numbers.

For my analysis, I have divided the Total Revenues (India Mobile business only) of the two companies into two parts: Data Revenues & Non-Data Revenues. The latter part will comprise about 95% of Voice business & rest from VAS like SMS, Ringtones, etc. Let's first check out the

Quarterly progress of the Non-Data Revenues. Both the companies have seen their Quarterly Non-Data Revenues hover within a range over the last 10 quarters. Idea Cellular has performed slightly better than Bharti Airtel. Idea's Sept'16 number of Rs.7420 crores is nearly 14% higher than it's Sept'14 number of Rs.6525 crores and nearly 5% higher than it's Sept'15 number of Rs.7035 crores. On the other hand, Bharti Airtel's Sept'16 number of Rs.11,158 crores is only 3% higher than it's Sept'14 number of Rs.10829 crores and nearly 3.6% higher than it's Sept'15 number of Rs.10762 crores. In Sept'14, Idea Cellular's Non-Data Revenues were about 60.3% of Bharti Airtel's corresponding number. But the same has now improved to 66.5% in Sept'16. Idea Cellular has clearly outperformed Bharti Airtel on the Voice business front over the last 2 years. Both the companies have also reported a small Q-o-Q dip in Sept'16, with Bharti Airtel's number dropping 3.2% and Idea Cellular's number dropping 2.2%. In case of Bharti Airtel, the Non-Data portion forms 75.7% of it's India Mobile business revenues, while the same for Idea Cellular forms 78.7%.

Coming to the primary growth driver of all Telecom operators across the world, i.e. Data Revenues, the developments in Sept'16 quarter have been exactly as per expectations. The steady growth that both Bharti Airtel & Idea Cellular were reporting quarter after quarter over the last

2-3 years, is clearly showing signs of coming to a screeching halt in Sept'16. I had mentioned this in my previous post on this topic. Have a look at the chart alongside. The sudden collapse of incremental growth rate was expected due to availability of Reliance Jio's Preview Offer since June-July16 and then the Welcome Offer launch on 5th September, when 4G Smartphone owners started scrambling for a Jio simcard. Let us try & check which one of the these two have done better so far. Bharti Airtel's Sept'16 Data Revenue of Rs.3577 crores is 98% higher than Sept'14 number and 23.6% higher than Sept'15 number, but only 1.4% higher Q-o-Q. On the other hand, Idea Cellular's Sept'16 Data Revenue of Rs.2009 crores is 92% higher than Sept'14 number and 19.2% higher than Sept'15 number, but only 2.2% higher Q-o-Q. Bharti Airtel has noticeably posted a little better growth in 2-years or 1-year comparison, but Idea Cellular has posted marginally better Q-o-Q growth number.

Bharti Airtel has a much wider 3G as well as 4G spectrum footprint when compared to Idea Cellular. Hence Airtel is expected to post much better Data Revenue/Volume growth. But it seems like either Airtel is not able to properly utilise it's spectrum advantage or Idea is doing much better even with 3G/4G coverage is limited circles. Let us look at how the Data Volume growth is panning out for the two operators.

Both operators have seen a stupendous surge in Data Volumes over the last many quarters. Bharti Airtel's Sept'16 Data Volume of 178.1 million GBs is 163% higher than Sept'14 number, 54.9% higher than Sept'15 number and 12.7% higher Q-o-Q. At the same time, Idea Cellular's Sept'16 Data Volume of 107.4 million GBs is 173% higher than Sept'14 number, 49.2% higher than Sept'15 number and 15.4% higher Q-o-Q. That means Idea Cellular has managed to outperform Bharti Airtel in Q-o-Q as well as 2-years comparison, but lagged only in the 1-year comparison. I find this to be a big achievement for Idea Cellular as it has a clear disadvantage when it comes to 3G/4G spectrum footprint. Bharti Airtel has been offering 3G in 21 circles on it's own spectrum, while Idea Cellular does the same in only 13 circles. Even on 4G front, Bharti Airtel has been offering the services in 15 or 16 circles for more than a year now, while Idea Cellular started rolling out it's 4G services only in December'15, that too limited to about 9 or 10 circles. Despite this spectrum holdings advantage, Bharti Airtel has not been able to report superior performance on the Wireless Data business front. At this point, I would rate Idea Cellular's overall performance to be superior to Bharti Airtel's.

Despite it's spectrum disadvantage, Idea Cellular has been very aggressive on the rollout of 3G/4G services in it's circles of strength. I had mentioned this in an earlier post on Idea Cellular in June'16. The observations that I had shared in that post are certainly the reasons behind Idea's strong performance despite spectrum disadvantage. During the recently concluded Spectrum Auctions, Idea Cellular has not just managed to strengthen it's spectrum position in the circles of importance, but also increased it's 3G/4G reach into newer circles. If Idea Cellular does manage to replicate it's success in it's strong circles (even to a small extent) in the newer circles, Bharti Airtel will have more reasons to worry. And we cannot forget Reliance Jio and Vodafone. Bharti Airtel clearly needs to buckle up and prepare for more aggressive network rollout and use it's spectrum advantage to the maximum. It has clearly failed to do so until now.

Reliance Jio Tariffs - Clear focus on Revenues!!!

Reliance Jio's tariffs has become the hottest topic in the Indian media since the chairman of Reliance Industries announced the same at the company's AGM yesterday. While everyone is going ga-ga over how Revolutionary or Game-changing the tariffs are, there are people like me who are somewhat disappointed. While I was expecting Reliance Jio's tariffs to be focused on the Data user with Voice being offered as an additional VAS, the actual tariffs seem to be focused on Voice user with Data as a VAS. Yes, it is being highlighted everywhere that Reliance Jio will NOT be charging for Voice Calls being made to anywhere in India, not even on Roaming, that certainly Does Not mean that a customer with an active Sim card will be allowed to make any number of calls without Recharging with any of the 10 Plan options. In a way what Reliance Jio has done is that it has bundled Unlimited Voice calling in all it's Plans. The Plans are designed to include charges for both Voice & Data & SMS. Not just that....most of the 'supposedly Big' tariff announcements are just means to fool people into believing that they are being offered something out-of-this-world.

The 'Supposedly Big' annonucements are:

* Free Voice Calls to anywhere in India, even on National Roaming.

* Data at just Rs.50 per GB

* Free subscription to Jio Apps worth Rs.15,000 till December'2017

* Free unlimited 4G Night Usage

Now let's look at the real picture. The following image shows all the Jio's tariff plans announced by Reliance Industries via a Press Release:

Let's look at it point wise:

* Free Voice Calls to anywhere in India, even on National Roaming: Voice calls are Free only after a subscriber has paid for either of the 10 plans. For Example: Suppose a subscriber recharges for the smallest plan, i.e. Rs.19, which is valid for 1 day. He will get to make Unlimited Voice Calls only for that day. He won't be able to make any calls the next day, until he recharges again. That means Voice Calling is bundled in the Plan charges. It's an excellent deal for someone who loves talking a lot on the phone. Jio will certainly hope that most of the Voice Calls are made within the Jio network and for that to happen it will have to scale up the Subscriber base at a very rapid pace. For every call that is made to another network, Jio will have to bear the Interconnect Cost of 14 paise/min. To compensate for this, Jio will hope that it also receives an equal number of calls from other networks, especially after it has built a substantial user base. I don't think that will happen until other operators too start offering Free Unlimited Calling under some affordable plans. With the cheapest 28-days plan of Rs.149, Jio will earn a revenue of little over Rs.5 per day. Hence Jio can maintain Free Voice Calling only if the Average Calls per user per day to another Network remain under 25 minutes or so. As per information available, as of now the Average number of outgoing calls made per user per day is around 15 minutes. I think Jio subscribers will make lot more calls as it's free. Hence Jio certainly needs to not just ramp up it's subscriber base, but it also needs to ensure that subscribers use their Jio number as their Primary contact number. From a subscriber's point of view, it's a bonanza for anyone who currently spends over Rs.200 per month only on making Voice Calls. Rival operators too will tinker their Voice Call charges or their STVs to minimize loss of Voice traffic.

* Data at Rs.50 per GB: This rate is true only if we consider the WiFi Data limits, not for 4G Data limits. Even on the most expensive plan, which offers 4G Data of 75 GB for Rs.4999, the rate comes to about Rs.67 per GB. Majority of the population cannot afford anything more than the Rs.499 or Rs.999 Plan, where the Data rate comes at Rs.125 and Rs.100 per GB respectively. These rates are certainly not cheap. These plans will look attractive to only those who have regular access to JioNet's WiFi Hotspots as each of Jio's Plans (other than the Rs.149 plan) comes bundled with WiFi Data limits that are double of the respective 4G Data limits. Jio claims to have a million WiFi Hotspots active currently, but all of them are mainly in highly active Public places in Urban areas. People who frequently move in such areas will certainly find Jio's tariffs attractive. But it's a useless feature for people living in smaller towns or rural areas. And also for people who are dependent on Wireless Data service and consume substantial Data while at home and not at work. A major chunk of Data usage for most Indians happens while at home. All such people are not going to find these tariffs attractive, unless someone is highly lucky to be receiving a JioNet WiFi signal at their residence.

* Free subscription to Jio Apps worth Rs.15,000 till December'2017: This is One Big Joke!!! Take a closer look at the Tariff card shared above. It clearly says that Data used for Jio Apps, Video Calls and other content on the Internet will be debited from the Data allocation for the Plan. Then how does Jio Apps subscription become Free as a user will be charged for Data used for the same. And claiming it to be worth Rs.15,000 for the year is only the matters worse!! Amongst the Jio Apps, the main focus of most people is on JioCinema, JioTV and JioMusic. While Music streaming could consume about 2-3 MB per minute, the Video Apps consume about 15-20 MB per minute. That means a person can listen to about 300-400 minutes of Music per GB or watch 50-60 minutes of Video per GB. I seriously think that the usage of these Apps will collapse substantially from 1st January when Jio starts charging all it's users. Not many people will use these Apps on Jio's 4G network from 1st January. My earlier expectation was that Jio will offer the Apps bouquet for something like Rs.300 to 400 per month, which will also include the Data consumed by these Apps. But my expectations were probably just way too optimistic.

* Free unlimited 4G Night Usage: Look at the Night Usage timings in the above tariff card. A 3-hours window between 2 am to 5 am, when 99% of the population is fast asleep, is another big joke. Earlier I used to ridicule the 12 midnight to 6 am Night Usage timings set by the incumbent operators for some of then 3G/4G plans and was happy that atleast Tata Tele had set a more sensible timing of 11 pm to 7 am. But after looking at the timings set by Jio, even the incumbent operators start looking much much more lenient. Only a very very small percentage of Jio's subscriber base will be able to make good use of the Unlimited Night Usage feature. For all others, it's as good as non-existent feature.

Summary:

Reliance Jio is Open to all Indians from the 5th of September'2016. The Chairman has announced that All Usage of Jio network for all subscribers will be completely Free till 31st December'2016. This announcement will ensure that millions of Indians (especially the ones who already have a 4G handset) will try and grab a Jio Sim card at the earliest and hope for an early activation. The Chairman also said that the systems are being prepared to activate 1 million Sim cards per day. With a near about 118 days of Freebie period till the end of this calendar year, we could see anywhere between 20 million to 50 million Jio Sim cards being activated during this period. The 4G user experience, which was pretty good for most 'Test' users through June and July, was already seeing some bit of deterioration over the last couple of weeks, when Jio added atleast a couple of million 'Test' users to it's network. With the mad rush for Jio Sims expected to continue from next week under the 'Welcome' Offer, it will be interesting to see if Jio's network is able to handle the load and still offer a User experience which is atleast better than 3G network experience of rival operators.

During this 'Welcome' Offer period, we could see more follow-on announcement from Reliance Jio. I am hoping for some new Tariff Plans for people who are not interested much in Voice Calling, but only Data Usage, especially for people who consume over 10 GB of Data every month. Possibly specific Plans for JioFi devices. Unless something like this happens, I am expecting about 50% of Jio's users enrolled till 31st December'2016, to shun Jio and go back to their previous Sim cards from rival operators. I will certainly be one of them, unless Jio offers Data-specific plans with higher usage limits. 

I think Reliance Jio will get very popular amongst Corporate Users, who are generally Post-paid ones. Reliance Jio's Postpaid plans are certainly offering lot more than that being offered by Airtel or Vodafone or Idea currently, especially on Plan 499 and above. These operators will immediately tweak their Post paid plans to try and retain their Corporate Customers, who offer substantial ARPUs on a consistent basis. Any loss of Corporate customer base to Reliance Jio, will mean a bigger impact on their profitability.

From the company's point of view, it is positive thing that the focus is clearly on earning decent amount of Revenues from every subscriber. Even under the cheapest plan of Rs.149 with 28 days validity (for prepaid), Reliance Jio will earn a minimum of about Rs.160-165 per month from every subscriber. Assuming about 50% of it's overall subscriber base to opt for a higher plan, Reliance Jio could be looking at a monthly ARPU of around Rs.400/-. Even if Reliance Jio manages to retain a paying subscriber base of about 25 million from 1st January'2017 onwards, it could result in monthly revenues of around Rs.1000 crores to start with. I am expecting Reliance Jio to incur a monthly Operating Cost of about Rs.1000 crores just to keep the 4G network Live across the country. In addition there will be cost for License Fees, Spectrum charges, Interconnect Cost, Staff Cost, Marketing Expenditure, etc., which together should amount to about Rs.700 to 1000 crores a month. That means Reliance Jio needs to achieve a monthly Revenues of about Rs.2000 crores just to cover all it's Expenditures (excluding Interest). Depending on how well it is able to ramp up it's paying subscriber base from January'17 onwards and react to competition's moves, it could take anywhere between 6 to 12 months for Reliance Jio to reach a monthly Revenues of Rs.2000+ crores. 

Reliance Jio certainly cannot stop there as it has the Huge Debt burden to cater to as well. Thanks to a rich parent's backing, the Average Interest Rate for Debt raised by Reliance Jio is probably just about 7 to 8%. Still the Annual Interest Cost alone should be in the region of Rs.8000 to 10000 crores (including for Working Capital Loans), translating into an average monthly figure of about Rs.700 to 800 crores. That means Reliance Jio will need to take it's Monthly Revenues closer to Rs.3000 crores to achieve Cash Profit. I will be highly surprised if Reliance Jio achieves that target before the end of year 2018, especially with the current set of tariff plans announced. Reliance Jio will certainly have to make serious changes to it's tariff structure sometime around the end of year 2017 to keep the subscriber addition momentum going.

Thanks to the Freebie period under the Welcome Offer announced by Reliance Jio till 31st December'2016, I am expecting the entire Telecom industry to take a 3 to 5% hit in Gross Revenues in September'16 quarter and about 10-15% hit for December'16 quarter. The Oct-Dec'16 quarter will be quite a pain period for the entire Industry. But things should start looking better from the Jan-Mar'17 quarter and we can expect to see some good competition. The worst hit could obviously be the smaller operators & it will be interesting to see how long they survive and what steps they take. Despite the tariffs announced by Reliance Jio being disappointing for a small section of users, it will be positive for the overall Subscriber community, primarily via increased competition.

Idea Cellular & Bharti Airtel's Data consumption & Data Revenues progress

There was virtually no impact on the India (wireless) businesses of Bharti Airtel & Idea Cellular from waiting-in-the-wings operator Reliance Jio until the end of March'2016. Till that point Reliance Jio had offered sim cards only to it's employees & some business partners, totaling just about half a million in number. But in the month of May'2016, Reliance Jio opened the gates for outsiders to also get an opportunity to use their 4G services via the Preview Offer, where a customer buying a LYF handset (in-house brand) would get a complimentary Jio sim card with 90 days of Unlimited usage of Data, Calling & SMS. The news of the availability of Preview Offer started spreading and by the first half of June'16, thousands of heavy Data consumers across the country were buying the LYF handsets everyday, purely to enjoy unlimited 4G service for 90 days. It is expected that Reliance Jio enrolled about 1 million 4G customers in the month of June alone and July to be better. By now we are seeing Jio's signboards even in all small towns and even many villages along the highways. The operator seems to be almost ready for a commercial launch now.

Coming back of Bharti Airtel & Idea Cellular, their June-Quarter results have thrown up many important signals of things to come. (In this analysis I have focused only on the India Wireless Data business of the two operators.) These signals are not surprising at all as I have been saying it since last year that All Existing Operators will take substantial hit because of Reliance Jio's entry into the market. We just have to

keep an eye on how efficiently each operator is facing the competition. Let's start with growth in 3G/4G Data subscriber base of the 2 operators:

Bharti Airtel's 3G/4G subscriber base was just 7.4 million in Sept'13, which has now increased to 36.6 million by June'16, that means an addition of 29.2 million subscribers in 11 quarters at an average of 2.65 million per quarter. The Dec'15 quarter was the best for the company when it added 7 million new users in this category, followed by addition of another 4.6 million in March'16 quarter. But Airtel has quickly lost all momentum with addition of a paltry 1.1 million Wireless Broadband (3G/4G) subscribers in June'16 quarter. Idea Cellular has had a much more linear growth even in the recent quarters. It's 3G/4G subscriber base has increased from just about 5 million in Sept.'13 to 27 million in June'16, that means an addition of 22 million users in 11 months at an average of 2 million per quarter. And June'16 proved to be it's best quarter here when it added 3.4 million Wireless Broadband users. Out of these 3.4 million new users that Idea Cellular added, about 1.1 million were on the 4G network, after having added about 0.7 million 4G users in March'16 quarter. That means the aggressive rollout of 4G network in 10 circles, where Idea holds 4G compatible spectrum, seems to be helping the company add more users than it's larger competitor, which now has 4G compatible spectrum across all 22 circles of the country. After the recent acquisitions of Videocon's 1800 MHz and Aircel's 2300 MHz spectrum in nearly a dozen circles, Airtel now becomes the only operator other than Reliance Jio to hold a pan-India 4G compatible spectrum in either 2300 MHz or 1800 MHz bands or both (in a few circles). Now a lot depends on how quickly it manages to roll out 4G networks using these spectrum bands and also the quality of it's coverage. Idea Cellular has done a superb job of 4G network rollout in several cities & towns in the 10 circles that was possible to the operator.

Strong subscriber addition number for Wireless Broadband services in a particular quarter not just has an impact on the Data consumption

in that quarter, but also has a spillover effect in the following quarter. Have a look at the chart alongside. The Quarterly Data consumption on Bharti Airtel's networks (2G/3G/4G) has multiplied four & half times in the last 11 quarters from about 34 million GBs in Sept'13  to about 158 million GBs in June'16. Nearly 90% of this growth has been propelled by the proliferation of 3G networks initially and 4G networks in the recent couple of quarters. The situation is even better with Idea Cellular, which has seen it's Quarterly Data consumption on it's networks to multiply five & half times over the last 11 quarters. It was just about 17 million GBs then, which has now reached 93 million GBs. Idea's Data consumption number had posted an extremely weak growth in March'16 quarter on the back of nearly 10% Q-o-Q drop in 2G Data volume and a relatively slow 7.5% growth in 3G/4G Data volume. But the operator has bounced back smartly with over 16% Q-o-Q growth in 3G/4G Data volumes and over 13% growth overall in June'16. That is a big outperformance over Bharti Airtel's volume growth of under 8% in June'16. Out of the most recent 9 quarters, Idea Cellular has managed to post better Q-o-Q Data volume growth than Bharti Airtel in 5 quarters. With wider 3G & 4G coverage across all 22 circles, Bharti Airtel is certainly expected to do better than Idea Cellular in both subscriber additions as well as Data Volume growth. But it seems Idea Cellular is not going to take it lying down with superior performance in the 17 circles where it holds either a 3G license or a 4G license or both. This fight will be very interesting in the coming quarters. Both operators have recently announced substantially higher usage limits on existing Data plans, which is probably the initial steps to counter the pressure being felt from Jio's Preview Offer. We could see more upward revisions in the usage limits in the coming few weeks as the pressure keeps piling up as Jio's commercial launch gets nearer. This is the only way that the existing operators can try & maintain it's Data Volume growth.

Both Bharti Airtel & Idea Cellular have seen their Quarterly Data Revenues multiplying about three and half times over the last 11 quarters. With Reliance Jio effect expected to start kicking in from Sept.'16 quarter onwards, it will be interesting to see how long do these operators manage to continue posting growth in their Quarterly Data revenues. Frankly I am expecting almost all existing operators to report Q-o-Q drop in Data revenues over the initial couple of quarters of full-scale commercial launch by Reliance Jio, though of varying degrees. The drops experienced by each operator will depend on how well these operators are able to offer Good Quality of service at not-so-expensive tariffs compared to Reliance Jio.

I am expecting the Drops to be more severe for smaller operators like Aircel, Tata Tele & Uninor, who offer 3G or 3G-like services in very limited number of circles. Amongst the biggies, Vodafone is expected to take the biggest hit mainly because of it's limited 4G presence currently. Vodafone is expected to be the most aggressive participant in the upcoming Spectrum Auctions scheduled to start on 29th September'16. Both Idea Cellular & Bharti Airtel are a little better placed at the moment, but both of them will still experience some bit of drop in Revenues. Reliance Jio's 4G coverage across the country is expected to be currently way superior to 3G/4G coverage of any of the existing operators. Data Speeds on Reliance Jio's 4G network may not be the best at all locations, but it will certainly be better than 3G speeds offered by any of the existing operators, and priced much more aggressively. Apart from Data speeds, Reliance Jio is expected to offer Free Jio-to-Jio VoLTE calling across the country, bundled with it's Data packs. That means the existing operators have not just the Wireless Data business to worry about, but even it's bread-and-butter Voice business too.

Let's see how Reliance Jio's commercial launch unfolds (hopefully in this quarter) and how the Sept.'16 quarterly numbers turn out for Bharti Airtel & Idea Cellular.

Telecom AGR: Q4 Analysis - BSNL/MTNL & Idea are biggest gainers.

TRAI released the Gross Revenue & AGR details of all telecom operators for the March'16 quarter this week. It is very interesting to see the kind of progress made by different operators & different circles. The Industry wide AGR has jumped 4.4% Q-o-Q and 11.25% Y-o-Y to touch a figure of Rs.39985 crores in March'16. This is a healthy growth rate & the Industry should be happy about it. The Top-3 circles in terms of contributions to the AGR continued to be Maharashtra, Andhra Pradesh & Karnataka, who together contributed about 25.6% of Total AGR of all 22 circles. Despite their size, these circles have reported a Y-o-Y growth in AGR of around 16%, which is noticeably higher than National AGR growth rate. The Top-3 circles in terms of fastest Y-o-Y growth rate were the relatively smaller circles of Himachal Pradesh, J&K and North-East, who have grown at 21-22% and have seen their combined contribution to National AGR improve from 2.3% in March'15 to 2.5% in March'16. With increased economic activity even in these regions, we should see them continue with the strong progress.

Coming to operator-wise performance, I have focused my attention studying details of only the Top-4 operators as they together contribute about 82% of Industry-wide AGR.

1) Bharti Airtel : Airtel's Y-o-Y AGR growth was healthy at 15.26%, but the Q-o-Q growth was disappointing at just under 3%. This Q-o-Q disappointment resulted in it's Market Share slipping from 30.5% in Dec'15 to 30.1% in March'16. Nevertheless Bharti Airtel's market share has still managed a 110 bps improvement Y-o-Y, which is still commendable for a company of it's size. Bharti Airtel also crossed the Rs.12000 crores Quarterly AGR mark during this quarter. In fact Airtel's one quarter's AGR is even larger than the Annual AGR of No.5 operator in the country!!

The largest contributing circles to Airtel's AGR are: Karnataka (12.9%), Andhra Pradesh (11%) and Tamil Nadu (9.5%). These 3 circles together contributed over Rs.4000 crores in AGR during March'16. In terms of Market Share, Airtel commands over 40% share in 9 of the 22 circles in the country, but most of them are the relatively smaller ones. The most disappointing circle for Airtel is Kerala, where it commands just 7.6% share and has lost about 2% in the last 1 year. The reason could be the lack of 3G license for this circle. Airtel is trying to correct that with an aggressive 4G rollout across the state of Kerala and we could see things turning around for the operator even in this region.

The circles where Airtel has gained over 2% market share in the last 1 year include Kolkata (+7.6%), Mumbai (+4.7%), Haryana (+3.3%), Gujarat (+2.8%) and Tamil Nadu (+2.1%). Most of these circles have seen aggressive 3G/4G rollout by Airtel during the last few quarters. Acquisition of Loop's Mumbai operations did boost Airtel's standing in the crucial Metro circle.



2) Vodafone India: India's No.2 operator has had a relatively disappointing year. Even though Vodafone managed to match Q-o-Q Industry growth with 4.6% AGR growth, it's Y-o-Y growth at just 10% was lower, which has resulted in 30 bps reduction in it's Market share from 21.8% in March'15 to 21.5% in March'16. Another worrying factor for Vodafone India is the limited circles where it can offer 4G service currently, that too on very limited spectrum. It will certainly need to open it's purse strings during the upcoming auctions to become more competitive in the 4G space in the country.

The Top-3 contributors to Vodafone's AGR during March'16 were Gujarat (10.6%), Maharashtra (10.4%) and Tamil Nadu (9.7%). Vodafone commands over 25% market share in 8 of the 22 circles, which includes a few prominent ones like Delhi, Gujarat, Mumbai & UP(E). The circles where Vodafone has managed to improve it's market share over the last 1 year are: Assam (+4.6%), North-East (+3.3%), Orissa (+2.2%), Bihar (+1.7%) and Himachal (+1.1%). Most of these are insignificant circles. In most other circles Vodafone has either barely managed to maintain it's share or has even lost significant share. Vodafone has even lost some share in the Top-3 contributors to it's AGR, i.e. Gujarat, Maharashtra & Tamil Nadu. It has also lost 1.7% market share in Delhi and 1.1% in Andhra Pradesh circle.

Vodafone certainly needs to get it's act together soon. It needs to do something to stop the market share erosion in circles which are very important to it like Delhi, Gujarat, Maharashtra, Mumbai, Tamil Nadu & UP(E). It is already facing the heat from existing competition and things will get even tougher with new competition coming in.




3) Idea Cellular: India's No.3 operator has been the best & most consistent performer over the recent many quarters. With Y-o-Y AGR growth of 19.8% and Q-o-Q Growth of 6.84%, Idea Cellular has once again demonstrated it's superior growth. Idea Cellular's market share has grown from 17.8% in March'15 to 18.7% in Dec'15 and now to 19.2% in March'16. That means a 140 bps improvement in the last 1 year. Idea Cellular is rapidly catching up with the No.2 operator. The gap between Vodafone & Idea's AGR in March'15 was about Rs.1430 crores, which is now down to just about Rs.960 crores in March'16.

The Top-3 contributing circles to Idea's AGR are: Maharashtra (15.9%), Madhya Pradesh (11.8%) and Kerala (11.8%). These 3 circles together contribute close to 40% of Idea's Total AGR. The smallest contributors to Idea's AGR are circles like Assam, Himachal, J&K, Kolkata, North-East, Orissa, Tamil Nadu & West Bengal. These 8 circles together contributed just 5.5% of Idea's Total AGR in March'16. But their contribution was just 3.4% during March'15. The AGR from these 8 circles has almost doubled in the last 1 year. Idea has probably started operations in these circles on it's own network in the recent couple of years.

Idea Cellular commands over 40% market share in 2 circles of Kerala & Madhya Pradesh, while it commands over 30% market share in 3 other circles of Maharashtra, Punjab and UP(W). Idea Cellular has managed to increase it's market share by over 2% in 6 circles over the last 1 year, which include prominent ones like Bihar, Kerala, Punjab, Tamil Nadu & UP(W). Even in Metro circles of Delhi & Mumbai, where it entered very late, Idea has managed to improve it's market share by about 1% each. During the last couple of spectrum auctions, Idea Cellular did the smart thing of bolstering it's 3G/4G capable spectrum holdings in all the large revenue contributing circles. Idea Cellular has 4G capable spectrum in 10 of it's important circles, which should help it insulate to some extent from aggressive competition.

4) BSNL/MTNL: The famous Sleeping Giant of the Indian Telecom industry, which slept through nearly a decade of strong industry growth, is certainly showing signs of waking up from it's long slumber now. After many many many quarters of either negative or zero growth in AGR, the PSU behemoth has shown signs of stability or positive growth in the recent few quarters. BSNL/MTNL combine reported 14.5% growth in AGR during March'16 quarter, both Y-o-Y as well as Q-o-Q. There has been a sudden jump in AGR reported by MTNL for both it's Metro circles. MTNL reported over 21% Y-o-Y and an astonishing 56% Q-o-Q growth during this quarter. Looks very very unusual and it seems like many of it's customers have suddenly come out of dormancy and started generating revenues for the company. Things will be more clear after the AGR numbers for June'16 quarter are announced.

Excluding MTNL circles, BSNL still did a fairly good job on the growth front during March'16 quarter. BSNL's 20 circles reported 12.8% Y-o-Y and 6.6% Q-o-Q growth in AGR, both of which have been better than the Industry growth rates. This is something that BSNL must have delivered for the first time in the last many years. Apart from Mumbai & Delhi, the 3 biggest AGR contributors for BSNL during March'16 quarter were Maharashtra, Kerala and Tamil Nadu. Out of the 20 circles, BSNL's 13 circles reported Q-o-Q growth, 11 of which posted strong double digit Q-o-Q growth. These are very very positive signals coming from BSNL. Hope that this is not a one-off and the company is able to sustain decent growth rates in the coming quarters.

BSNL/MTNL combine managed to grab 11.2% of market share in March'16 quarter, which is higher than the number in March'15 as well as Dec'15. BSNL/MTNL's market share across the 22 circles is well spread out with the combine managing to grab over 15% market share in only 6 circles. The circles where BSNL/MTNL managed to increase their market share by over 150 bps are: Andhra Pradesh, Delhi, Haryana, Maharashtra, Punjab & West Bengal, most of which are relatively larger circles. Lets see how BSNL/MTNL consolidate on this growth momentum in the coming quarters.


Summary: The Top-4 players in the Indian Telecom Industry have been increasing their dominance with their combined AGR Market Share increasing from 79.5% in March'15 quarter to 81% in Dec'15 quarter and 82% in March'16 quarter. The AGR numbers over the recent quarters have clearly proved that Idea Cellular is currently best performer in the Industry, followed by Bharti Airtel. The combine of BSNL/MTNL could prove to be a strong challenger, but it needs to show more consistency. Vodafone India, after having been on a very strong footing for many years, is showing slight signs of weakness compared to it's immediate peers. But this cash-rich operator certainly has the ability to bounce back, but might need a good outcome in the upcoming spectrum auctions and a few quarters of time to do so.

Amongst the smaller operators, who have been losing market share repeatedly, there is a possibility of a strategic merger between RCom, Sistema (MTS) and Aircel getting completed in the near future. But the merged entity is expected to hold the No.5 position in AGR market share, a little behind BSNL/MTNL. The possibility of a merger/acquisition between Tata Tele & Telenor is still uncertain as neither of the management's have uttered anything about it. Until these things work out, we will continue to focus on the Top-4 players. Reliance Jio will join the fray, hopefully before the end of this year. Once it does, it will be interesting to see how the numbers start changing for the Top-4 players.

Bharti-Videocon Spectrum deal :- Idea's big Loss!!

Idea Cellular came out with an announcement on 16th March that it has cancelled it's Spectrum purchase deal for the two circles of Gujarat & UP (W) from Videocon Telecom. The very next day, i.e. on 17th March, Bharti Airtel sprung a surprise by announcing a deal to buy Videocon Telecom's spectrum in all six circles of UP (E), UP (W), Bihar, Haryana, Gujarat and Madhya Pradesh&Chattisgarh. What was a bigger surprise was the price that Bharti Airtel is paying for this acquisition. Compared to the amount of Rs.3310 crores that Idea Cellular had previously agreed to pay Videocon for spectrum in only 2 circles, Bharti Airtel is now getting spectrum in all six circles for just Rs.4428 crores!!

While the price that Idea Cellular had agreed to pay was certainly on the exorbitant side, the price that Bharti Airtel managed to negotiate the deal for seems to be more or less fair value. I am sure that Idea too was trying hard to bargain for a lower price than the one they had initially agreed to pay. On the other hand, some reports suggest that Videocon was trying to convince Idea to buy spectrum in all the six circles as a package, which Idea was not willing to do. Frankly I don't understand the logic behind Idea's decision to NOT Buy the entire package, especially when Videocon was willing to sell it at a price which was just about 33% higher than the price Idea had agreed to pay only for 2 of the 6 circles!! Or maybe Bharti Airtel applied some special Negotiation Skills to convince Videocon to part with it's spectrum at an 'attractive' price.

Coming to other numbers as regards to whom did the six circles matter more, I again think that it's a Big Loss for Idea Cellular. The Six circles in question contribute nearly 37% of Idea Cellular's Total AGR, while it does not have 4G compatible spectrum in 4 of the 6 circles. Idea already has 4G spectrum in Madhya Pradesh and Haryana circles. These two circles contribute around 14.5% of Idea's Total AGR. That means if Idea had acquired spectrum in all 6 circles, then it would have enabled it to offer 4G service in the additional 4 circles, which contribute almost 23% of it's Total AGR and also strengthened it's 4G spectrum holding in 2 circles which are also very important to the company. On the other hand, the six circles contribute around 22.5% of Bharti Airtel's Total AGR and the company is No.1 operator in just 1 of those 6 circles!! Amongst these 6 circles, Airtel is No.1 in only Bihar & it did not have 4G spectrum for this circle as well as 4 of the remaining 5 circles. This acquisition is certainly positive for Bharti Airtel as it will now be able to offer 4G service in 19 out of India's 22 telecom circles. Airtel will now be better able to protect it's revenues from RelJio onslaught and possibly even snatch market share from other operators like Vodafone & Idea Cellular who won't be able to offer 4G service in many of these circles. Ofcourse it will take a few months before Airtel is able to offer 4G service in these circles as it will take time to get regulatory clearances first and then to roll out network infrastructure. But at least it is in a much better position than both Vodafone & Idea Cellular as these two will have to solely rely on their 3G network for most circles to try and protect their revenues.

Telecom Market Shares - Trailing-Twelve-Months Performance Check. (God Knows when RelJio will start disturbing it!!)

When I posted my previous report on Telecom Market Shares in the 3rd week of Dec'15, I was expecting RelJio to start commercial operations on 28th Dec'15. But it did not happen. Now we are in the middle of March'16, but still there is no news/signs of launch of RelJio's commercial operations. We now have Adjusted Gross Revenue (AGR) details for the Quarter ending Dec'15. And possibly we will have even the March'16 Quarterly report without any start of RelJio effect. I will keep tracking the progress closely as I am expecting things to start changing rapidly after RelJio's entry.

In my previous report, I had discussed progress in the Quarterly AGR numbers of all operators. This time I will focus on Trailing-Twelve-Months AGR numbers of only the Top-8 operators, as these operators constitute around 97-98% of both subscribers market share and AGR market share. The analysis of T-T-M numbers gives us a better idea of a trend as individual quarterly fluctuations gets averaged out.

Let's first quickly have a look at the progress in subscriber market shares of the Top-8 operators for the Dec'15 quarter compared to the situation at the end of Dec'14. The Top-3 operators have continued to strengthen their combined market share. But amongst them, Airtel & Idea Cellular are clearly the best performers with a gain of 106 bps each over the last 12 months. On the other hand Vodafone has gained just 23 bps over the same period. Amongst the remaining 5 operators in the list, RCom has lost 128 bps and Tata Tele has lost 100 bps, primarily because both these operators are rapidly phasing out their CDMA mobile operations to be able to use this spectrum purely for Wireless Data operations. The sooner they finish with this phasing out process, the sooner they will be able to use the 800/850 MHz spectrum for 4G services. Telenor has finally crossed the 5% subscriber market share mark on the back of their 'Sabse Sasta' campaign across it's 7 circles of operation, which is a very significant achievement. But thanks to this very campaign, Telenor could remain the poor-man's mobile phone service.

Coming to the AGR numbers, the industry-wide AGR for calendar year 2015 crossed the Rs.1,50,000 crores mark, posting a Y-o-Y growth of 12.2%. The T-T-M AGR now stands at Rs.1,50,692 crores. Amongst the Top-8 operators, the best outperformer was India's No.3 Wireless operators, i.e. Idea Cellular with 23% Y-o-Y growth, followed by No.8 operator Telenor which managed 22.5% Y-o-Y growth. Apart from these two, the only other operator to post better-than-industry growth rate was Bharti Airtel with 14.3% growth. Vodafone reported a growth of 11.9%, which is marginally slower than industry growth rate. Hence while Bharti Airtel & Idea Cellular reported impressive improvements of 0.6% and 1.6% in their respective AGR market shares, Vodafone underperformed with a very marginal 0.1% drop. Since Telenor is much smaller in AGR terms, it's market share improvement was just 0.2%, despite 22.5% growth in AGR. Aircel & Tata Tele too managed some decent growth of around 9.5% each, hence the drop in their AGR market share was also very marginal. The biggest loser, without doubt, was RCom which lost 1.3% from it's AGR market share on the back of 12.7% Y-o-Y de-growth in it's T-T-M AGR numbers.

RCom is rapidly losing it's business and that's probably the reason why it is hurriedly trying to consolidate with Sistema & Aircel. In the Press Releases that RCom has given in recent months about their potential consolidation move, they claim that it will make it India's No.2 operator in terms of subscriber market share. Yes, arithmetically RCom+Sistema+Aircel will have a subscriber market share just ahead of Vodafone as of Dec'15, but the speed at which RCom itself is losing it's subscribers & revenues, I don't think the combined entity will be able to hold that position for long. The situation is much worse on the AGR market share front. The Trio has a AGR market share of just 10.7% on a T-T-M basis, which makes it a distant No.4 in AGR rankings. If BSNL, which currently has 8.8% AGR market share, successfully continues it's resurgence and RCom continues to lose it's revenues, we could see BSNL overtaking the Trio in a year's time.

Bharti Airtel's T-T-M AGR has hit the Rs.45,000 crores mark and a market share of 29.9%. It has posted stronger growth in the last 2 quarters on the back of it's aggressive 3G & 4G network rollout announcements in more & more cities across the country. Idea Cellular's strong AGR growth has brought it significantly closer to Vodafone in AGR stakes. With a wider 4G footprint, Idea Cellular could close the gap further down at a rapid pace and could be within striking distance of overtaking it in a year's time from now.

Amongst the rest of the pack, BSNL is showing promising signs of improved progress over the recent couple of quarters and it's quite obvious from the charts as of now. On the other hand Tata Tele & Aircel are both showing signs of fatigue in their AGR progress. RCom is already on the path of rapid descent as discussed earlier. Telenor badly needs more ammunition or newer weapons to accelerate it's progress. It certainly needs to expand beyond it's limited 7-circles operation and seriously look at offering Wireless Data service, which is going to be the growth driver going forward.

Finally.....I certainly hope that by the time the AGR report on March'16 quarter is out some time in the month of May, we will have something to discuss about RelJio's services & tariff plans.

Bharti Airtel Ltd. - Triple Whammy coming up!!

Even though I am writing this report taking Bharti Airtel's Wireless India business numbers into consideration, the situation is more-or-less similar for most of the existing large telecom operators in the country.

Bharti Airtel is India's largest Wireless operator by quite some margin. The company is not restricted only to India, but the company's Wireless India business contributes nearly 60% of the company's Total Income and a higher proportion of it's consolidated profits. At the end of Dec'15, Bharti Airtel's India mobile customer base stood at a whopping 243.3 million, which is probably larger than the total population of many of the other countries that Bharti Airtel offers it's services in. The customer base has been growing consistently at a healthy pace. In the last 4 quarters alone, Bharti Airtel's India base has grown by 12-13%, which is very healthy considering it's size of operations.

In the chart alongside, the Orange portion represents the 3G Data Customer base, while the blue portion represents the remaining customer base, which will include a small portion of 2G Data customer base. But these customers will be primarily Voice Customers for Bharti Airtel. On the other hand, the 3G Data Customers will be generating both Data as well as some bit of Voice Revenues. Purely in Number terms, Bharti Airtel's Voice Customers have increased from 195 million in Mar'14 to 215 million in Dec'15, i.e. an increase of 20 million in the last 7 quarters. During the same period, the company's 3G Data Customers increased from 10 million to 28 million, i.e. an increase of 18 million customers. Hence in pure number terms, both segments have seen near similar increase over the last 7 quarters.

But here is the interesting part. On one hand Bharti Airtel's Quarterly Data Revenues have shot up over 130% over the last 7 quarters to hit a figure of over Rs.3150 crores in Dec'15, but on the other hand the Non-Data Revenues number has remained around the same level during all these quarters. In fact the Non-Data Revenues number is even threatening to start posting negative Y-o-Y growth now. That means whatever Voice customers the company is adding in the recent quarters, is being nullified by drop in Average Voice Revenues from each customer. While on the Data Revenues front, the Volume of GBs consumed is growing faster than growth in Revenues, primarily because the competitive pressures are gradually bringing down the Rate per MB being charged by operators.

Why the Triple Whammy? -
As we have seen above, the healthy growth in subscriber base is not leading to any growth in Airtel's Voice Revenues, even though there has not been any increase in the number of players in the recent quarters. That means the Voice usage market is around the Saturation mark currently & we may not see any industry-wide growth in this segment for a substantial period of time.

Coming to the Wireless Data business, even though the Revenues are showing healthy Q-o-Q growth currently on the back of even stronger growth in usage, the consistent fall in average Rate per MB clearly suggests that competitive pressures are increasing within the existing 3G/4G operators. And we will be witnessing the entry of Goliath in this very market by the end of this quarter or some time in the next quarter. This new competitor will not just pull some portion of the high-yielding customer base from the existing operators, which could directly result in some bit of drop in Data usage volumes for all existing players, but also force everyone to bring down the Average Rate per MB charged further down by another 30-50% easily. This will certainly pull down the growth momentum in the Data Revenues of almost all existing operators for the initial few quarters, before things start stabilising.

In the above two points, the focus was on Topline growth, which is expected to come under severe pressure once the large new competitor starts to offer it's services on a commercial basis. But there is a third very significant factor which will but pressure on the Bottomlines of all the existing operators, and that is the CAPEX. All existing leading operators are rapidly investing in installing 4G network infrastructure across all their important markets. Bharti Airtel is clearly the leader here with the widest 4G network in commercial operation in India. But things will change once the new competitor comes in with a 4G network coverage that will be match the 2G+3G+4G coverage of almost all existing operators. Hence Bharti Airtel will have to continue spending on CAPEX to extend it's 4G coverage to more & more areas and also acquire 4G capable spectrum in the coming auctions or from other smaller players, for the circles where it currently doesn't have any. While 4G becomes more & more popular in the coming few years, we could see the 2G & 3G infrastructure becoming more & more obsolete and it's usage dropping after the initial few quarters. Some of these operators might be forced to write down on the CAPEX they had incurred on expanding their 2G & 3G networks, if the usage drops to unviable levels.

Summary: The next few quarters are going to be extremely testing times for Bharti Airtel as well as all other existing operators. We will certainly see some of the smaller operators perish during this phase. We will also see attempts to consolidate amongst some of the operators in an effort to try & remain relevant. The business fundamentals of all existing operators are going to worsen substantially over the next few quarters, once RelJio starts operations. We could see stability coming in sometime in the middle of 2017, by when things will be clear about the competitive landscape. All these things will continue to exert pressure on the stock prices of Bharti Airtel, Idea Cellular and few of the other listed players. Their share prices are already down about 25-40% from their peaks, but they could very well go down by a similar percentage in the coming months as their business fundamentals come under pressure. Be ready for further rough ride.

Wireless Data business - Idea Cellular vs Bharti Airtel.

A few days back, after checking Idea Cellular's Q3 numbers, I had highlighted the point that it's Wireless Data business is already facing competitive pressures with incremental growth rates tapering quite quickly over the last couple of quarters. Now that we have Bharti Airtel's Q3 numbers too with us, I thought of digging deeper to compare the performances of the two companies in the Indian market only. I have only considered Bharti Airtel's Wireless India business numbers for this comparison.

To get an idea of the recent trend, I have collated Trailing-Twelve-Months numbers for Data Revenues and Non-Data Revenues for the period ending Sept'14 to the 12-months ending Dec'15, for both Idea Cellular and Bharti Airtel (India). These numbers help us understand the trend that is developing over the most recent 5 quarters.

Idea Cellular: 

On a T-T-M basis, Idea Cellular's Data Revenues have doubled from Rs.3208 crores to Rs.6434 crores over the last 5 quarters. Data Revenues contributed 11.1% to Idea's Total Revenues in Sept'14. But the same has sharply increased to 18.2% by Dec'15. This is something that is already known. Now here is the interesting part.....have a look at the chart below:

The chart on the left shows the progress of the T-T-M Data and T-T-M Non-Data Revenues with every passing quarter. While the chart on the right is complimentary as it shows the Q-o-Q change in the T-T-M numbers for both Data & Non-Data Revenues. 

As we can see, the incremental growth in Non-Data Revenues peaked in Dec'14 and has been coming down since then. In fact the pace of fall has accelerated in the last 2 quarters. But the Non-Data Revenues growth is still positive for Idea Cellular. On the Data Revenues front, the incremental Q-o-Q growth seems to have peaked in the March'15 quarter, when it hit the Rs.710 crores mark. Since then over the last 3 quarters, the incremental Q-o-Q growth has tapered off gradually to a level of Rs.567 crores in Dec'15. This is the bit that got me worried. Sharp reduction in growth of incremental Non-Data Revenues is understandable, but a consistent drop in incremental growth of Data Revenues is definitely not good. I am sure that Idea Cellular's management too must be worried on this front and hence it is aggressively trying to launch it's own 4G network in 750 cities & towns by June'16 as relying on 3G alone is not going to help in the face of fresh new competition, in addition to existing competition.

A small point to note is that Data Revenues became the bigger contributor to incremental growth for Idea Cellular on a T-T-M basis from the June'15 quarter.

Bharti Airtel (India business):

Bharti Airtel has posted an almost-equally strong 85% growth in T-T-M Data Revenues over the last 5 quarters. The figure now stands at Rs.11,009 crores, a figure that is probably higher than Annual Total Revenues of almost all telecom operators in India other than Idea, Vodafone & BSNL. Still the Data Revenues are just 20.1% of Bharti Airtel's Total India Revenues. Have a look at the charts below for Q-o-Q progress of T-T-M numbers:

Even in case of Airtel, the growth in it's Non-Data Revenues has seen a sharp fall off post the Dec'14 quarter. Infact the T-T-M Non-Data Revenues have started posting negative incremental growth since June'15 quarter. This isn't too surprising to note as we all have been expecting degrowth in Voice Revenues for most operators in the coming quarters. What is heartening to note in case of Airtel's numbers is that the Q-o-Q growth in T-T-M Data Revenues has not started tapering off yet. The incremental growth figure has remained steady above the Rs.1050 crores mark for the last 3 quarters. Airtel's wider own 3G coverage across almost all circles and also a growing 4G coverage in about 7 or 8 circles currently has definitely helped Airtel to keep the growth momentum in Data volumes & revenues on it's networks.

With a good amount of 3G and 4G coverage across most of the circles in India, Airtel is expected to be relatively less impacted due to RelJio's upcoming 4G launch, compared to all other operators. Airtel has 3G spectrum for 21 circles out of the 22 that our country is distributed in. It also has 4G spectrum in 9 circles currently and is trying to take that number to 15 via acquisitions or auctions.

Summary:

From the numbers that I have collated for this study, I can say that Idea Cellular has done better than Bharti Airtel when it comes to Voice Revenues. But Bharti Airtel has clearly done better than Idea Cellular on the Data Revenues front. And the Data Revenues market is what is going to be the most important part going forward for all telecom operators. As of now Voice business contributes about 75% of the Industry's Total Revenues. But in about 3 or 4 years time from now, this proportion will drop to something like 35% or 40%.

Indian Telecom Market Shares - status check before RelJio's Tsunami arrives.

We all know that the Indian Telecom sector is at the cusp of a major reshuffle in the coming months/quarters as RelJio is slated to start offering it's 4G services very soon. So I thought it fit to do a status check of market shares of all the existing Telecom operators in the country. And while doing this data collation & analysis, I did find many interesting findings.

We have a total of 12 active telecom operators in the country with the 13th one to start operations very soon. Out of the existing 12, 5 operators are regional ones with operations in less than 7 circles each. I have collated data on the Quarterly Adjusted Gross Revenues (AGR) and Quarter-ending Wireless Subscribers market shares of all the operators. Please do note that the AGR includes both Wireless & Wireline operations of operators active in both segments.

BSNL&MTNL, Bharti Airtel, Reliance Communications and Tata Teleservices have some notable Wireline operations in various circles across the country. Amongst these BSNL&MTNL are the biggest ones controlling around 75 to 78% marketshare, but they have been losing it with every passing month bit-by-bit. Bharti Airtel is the next largest with about 13-14% market share, followed by Tata Teleservices with about 6% and most of the rest with Reliance Communications. Please do remember that the subscriber numbers in the Wireline segment are less than 3% of the Wireless subscriber base across the country. But at the same time, the ARPU (Average Revenue Per User) from the Wireline segment is 3 to 4 times that of the Wireless segment, atleast in case of the Private sector operators.

Coming to Wireless Subscribers market shares, the Top-3 operators, (i.e. Airtel, Vodafone & Idea) have strengthened their position with their combined market share improving from 56.1% to 59.2% (310 bps improvement) over the last 6 quarters. Amongst them, Idea Cellular alone has improved it's share by 170 bps. Apart from the Top-3, the operators that have managed an improvement in subscribers market share over last 6 quarters are: Aircel (67 bps), Telenor (85 bps), Videocon (24 bps) and Quadrant (6 bps). Amongst the market share losers, the 3 biggest losers are: BSNL (246 bps), Reliance Comm. (118 bps) and Tata Tele (75 bps).

After losing subscribers market share quarter-after-quarter and also losing it's No.5 position to Aircel, BSNL has finally managed to stop this trend with a minor market share improvement in Sept'15 quarter. As per various media reports, BSNL is said to be back in the game & is looking to ensure it's operational improvement in the coming quarters. BSNL's resurgence and RelJio's entry are 2 big things to worry for all the operators, including the Top-3 trio of Airtel, Vodafone & Idea.

Now let's discuss the AGR market shares as there are quite a few interesting findings here. Here the Top-3 operators have an even stronger hold with almost 70% market share. Airtel has a huge lead with a 30.1% market share and 850 bps lead over the No.2 operator Vodafone. Not just that, Airtel's AGR market share is 650 bps higher than it's own Subscribers market share. In fact, each of the Top-3 operators have an AGR market share higher than their respective Subscribers market shares. Vodafone's AGR share is about 270 bps higher, while Idea's share is about 140 bps higher than it's Subscribers share. This statistic clearly suggests that the quality of subscribers of the Top-3 operators is very good and each of them must be enjoying near Industry-best ARPUs in most of their circles of strength.

The weakest amongst the larger operators is definitely Reliance Communications. It's Subscribers share is a respectable figure of 11.1%, making it the No.4 operator, but it's AGR share is a lowly 4.3%, making it the No.7 operator here. This fact clearly reflects the quality of RCom's subscriber base. RCom certainly must be having the lowest ARPUs in the industry and that too by a huge margin. An AGR share of 680 bps lower than it's own Subscribers share is too massive to ignore. I sometimes do wonder, how did RCom manage this feat even after being in this business for so long. All this despite the fact that RCom has 3G license for the 2 prime Metro circles of Mumbai & Delhi and also has nearly 12 lakh Wireline subscribers, just about 30% less than Tata Tele's Wireline number. Something must be terribly wrong with RCom network & quality of service, which has brought it to this situation.

Other than RCom, operators who have an AGR share lower than their respective Subscribers share are: Aircel (320 bps), Telenor (260 bps) and Videocon (70 bps).

Now coming to those operators who have an AGR share higher than their respective Subscribers share are: BSNL (120 bps), MTNL (120 bps) and Tata Tele (50 bps). The thing that is common between these 3 operators is their healthy Wireline business. BSNL&MTNL together have over 20 million Wireline subscribers, but majority of them must be Residential users still and spread out across several cities. On the other hand, the private sector operators have Wireline business only in a handful of cities and cater mainly to Corporate & SME clients or large Housing complexes. Tata Tele's Wireline subscriber base of about 1.7 million is less than 3% of it's Total Subscribers base, but it's contribution to it's AGR must be easily in the range of 8 to 10%.

On a Trailing-Twelve-Months basis, the Indian Telecom Industry's Total AGR has posted a growth of about 3% Q-o-Q in the recent quarters. Airtel & Vodafone are also growing at a similar pace of between 3% to 3.5% Q-o-Q. Idea Cellular has managed to grow a little faster at rates between 5% to 6% and hence has seen the biggest improvement in Quarterly AGR market share of 210 bps over the last 6 quarters. BSNL's AGR numbers are clearly suggesting the start of it's turnaround. BSNL Quarterly AGR share had fallen from 10.6% in March'14 to a low of 8% in Dec'14, but has smartly bounced back to 9.2% in Sept'15 quarter. And there is also the possibility of operational consolidation between BSNL & MTNL, which could give further impetus to BSNL's resurgence.

RCom again is probably the only major operator who has seen it's T-T-M AGR fall consistently over the recent quarters, from Rs.7885 crores in Dec'14 to Rs.7188 crores in Sept'15. RCom's quarterly AGR share is down from 6.4% in Mar'14 to just 4.3% in Sept'15. And things could worsen further in Dec'15 quarter as RCom is slated to shut down it's 2G operations in a few circles due to license expiry. RCom is solely riding on 2 hopes: first it's consolidation with Sistema, which will add to it's 800/850 MHz spectrum holding and then sharing/trading this spectrum holding with RelJio and ride on the latter's 4G network. The slight chance of consolidating with RelJio is what is keeping RCom alive.

Future Possibilities: 

The war for market share is going to be fought in the Data segment and 4G could be the technology of choice for most operators going forward. Airtel has already launched it's 4G service in over 300 cities/towns across it's 6 or 7 circles on 2300 MHz spectrum. Simultaneously, Airtel is acquiring the smaller 4G 2300 MHz spectrum holders. Rumours are also afloat that Airtel is in talks with Aircel to buy out it's 2300 MHz spectrum holding, which will give Airtel a 4G coverage across over 15 circles. Apart from 2300 MHz holdings, Airtel has 1800 MHz spectrum in many circles and hence Airtel could be the only other 4G player with a pan-India coverage, other than RelJio.

Idea & Vodafone are also rolling out 4G networks on their 1800 MHz spectrum holdings, wherever available. Idea also recently acquired Videocon's 1800 MHz spectrum in 2 circles, which were important to it. The pricing was much higher than the Auction-determined price, but that is the kind of urgency/panic amongst the incumbent operators to rollout 4G networks & try to protect their Revenues after RelJio's onslaught begins. Idea & Vodafone might need to hold hands together to offer a wider 4G presence across maximum circles as they are not self-sufficient, while Airtel is self-sufficient. Both Idea & Vodafone are on the verge of launching their own 4G service in few select cities. Both of them would look to scale up their networks to atleast a few hundred cities each in the circles where they hold good AGR share and wouldn't like to lose it in the coming months.

RCom's possible consolidation with Sistema is already announced. During the same announcement, it was mentioned that RCom will later get merged into Sistema's Global operations. In such a scenario, RCom might only look at spectrum sharing/trading with RelJio. I have a feeling that RelJio might not want to take over anything other than RCom's 800 MHz spectrum. In any case RCom's subscribers quality is not good & low revenue generators. There are reports which suggest that RelJio might look at keeping it's ARPU well over Rs.300/- by offering it's customers the complete package of Voice Calls, Data packs and even different kinds of Content. All this will unfold through the year 2016, starting in a couple of weeks from now. Going by RelJio's potential scale of network rollout, RelJio could be at No.4 or 5 position in AGR stakes in 12 months from now and will certainly be amongst the Top-3 before the end of year 2017.

It is still very unclear on how other operators like Aircel, Tata Tele & Telenor plan on surviving in the coming months/years. Telenor has played by a clear strategy of pure 2G service at ultra-low cost. It has done well by reaching operational break even in most of it's circles of operation. But the success of this strategy will depend on whether or not our Rural population upgrades to Data usage or not. I am sure that Telenor too would like & would have to enter the 4G fray sooner or later. Tata Tele & Aircel, both currently have decent sized operations, but have bigger worries on the Debt front. If they urgently don't get into consolidation mode with some other operator or bring in new larger investors, the chances of their survival are very bleak.

Over the next 12-24 months, I am expecting the following 4-5 players/groups to play an important role in the Indian Telecom space: Airtel & RelJio will certainly be there on their own individual merits; Vodafone & Idea will do better if they join forces via virtual JV or atleast Roaming agreements; BSNL&MTNL with their 3G/Broadband/WiFi services; Amongst the rest I am expecting Telenor to take a lead in some kind of consolidation exercise. I am saying so going by the seriousness with which Telenor has rapidly scaled up it's operations within those limited circles of operations and also achieved operational profitability in most of them. Let's see how things unfold.

Happy Investing!!!

Wireless Data - the only major hope of Wireless carriers!!

With increasing penetration of 3G networks across the country & rising percentage of subscribers with a Smartphone in their hands, the usage of Wireless Internet services was bound to grow at a very very fast pace. Almost all telecom operators in India, including BSNL, have seen a staggering growth in the monthly consumption of Giga Bytes on their networks, which has translated into an almost similar staggering growth in Revenues from the Wireless Data service over the last 2 years.

I have information from Quarterly reports shared by Bharti Airtel & Idea Cellular, which are two of India's Top-3 Wireless carriers in India. Between Sept'13 and Sept'15, Bharti Airtel's Quarterly Data Revenues have seen an almost 180% jump. During the same period, the company's Quarterly India Telecom Revenues have grown by just 20%. About 80% of this incremental growth over this period of 8 quarters has come from Data Revenues alone. Data now contributes 21.2% of Airtel's Quarterly revenues compared to just 9.1% two years ago.

The quarterly volume of Data carried by Airtel's networks has increased by more than 230% over the last 8 quarters from under 35 million GBs to 115 million GBs. During the same period, the Average Rate per MB charged has come down very gradually from 30 paise to 25.2 paise. This slow erosion in rate is not because of increased competition, but primarily because of increased proportion of subscribers now opting for a Data pack instead of being charged on pay-as-you-use basis.

Coming to Idea Cellular, the company's Quarterly Data revenues have grown an even stronger 211% between Sept'13 and Sept'15. On the other hand Idea's Total Quarterly Revenues have grown by about 38%. Data business has contributed about 48% to Idea's incremental growth over this period of 8 quarters. Data's contribution to Idea's Quarterly revenues has jumped from 8.6% in Sept'13 to 19.3% in Sept'15.

In case of Idea Cellular, the growth in Quarterly Data volumes between Sept'13 and Sept'15 has been even more staggering. From about 17.5 million GBs, the quarterly volume has more than quadrupled to 72 million GBs over the period of 8 quarters. The Average rate per MB has seen a slightly faster erosion for Idea as compared to Airtel. Idea's Average rate per MB has fallen from 31 paise to 23.4 paise over the last 8 quarters. Despite faster growth in volumes and revenues from Data services, the contribution of Data to Idea's Total Quarterly revenues at 19.3% still lags Airtel's figure of 21.2%. This is mainly because Idea has done better with it's Voice business over the last 8 quarters, as compared to Airtel. 

Conclusion: 

As per my estimates & gut feeling, the Indian Telecom industry is at the cusp of a very dramatic change in it's composition. From being a Voice-dominated industry, it will soon take big strides towards being a Data-dominated one, over the next 2-3 years. It will all start with the launch of nationwide 4G services from Reliance Jio Infocom Ltd, which is a subsidiary of Reliance Industries Ltd. Expected to start by the end of this year, Reliance Jio will herald a new wave of communication services, not just Data service. I am expecting Reliance Jio to try & capture even the traditional Voice business by offering VoIP based services. Reliance Jio may or may-not offer the traditional Voice service, where we are charged on a per-sec or per-min basis. Everything could get counted in terms of Mega Bytes & Giga Bytes, even the Voice Calls.

Many of us have already experienced VoIP, either via Whatsapp calling or Google Hangouts or Video/Voice calling via Skype or Facebook Messenger, etc. These things work well only when there is good reliable high-speed internet service at both ends of the conversation. 3G networks have enabled us to have a glimpse of such VoIP services, but the experience has not always been very smooth. Hopefully with 4G speeds, there should be no problem even with HD-voice & HD-video services. Just like the way the use of Mobile Internet shot up with increasing population of Smartphones with subscribers, the use of Voice & Video calling over Internet services will shoot up with increasing penetration of 4G networks across the country. My prediction is that the mobile operators will start experiencing an erosion in their Voice revenues right from the first half of the year 2016, something which they have never experienced in the last 20 years.

All leading operators, including Airtel, Vodafone, Idea, have already started testing their 4G networks in various cities across the country. Airtel has already launched it's 4G service in over 300 cities, but the network coverage currently isn't like full-blanket coverage, but more patchy. Hence the user experience has been quite mixed. But things will improve as all operators are working on war-footing to have some kind of good 4G coverage, atleast in the crucial markets, so that they don't lose too much of revenue-generating customers to the upcoming new competitor. Vodafone has been repeatedly announcing that it will launch it's 4G service in important cities like Mumbai, Kolkata, etc. in December'15 itself and then expand further to other large cities in the following months. Idea Cellular too recently announced plans to launch 4G service in about 150 cities/towns between January & June of 2016. Unfortunately, none of these three big operators have All-India 4G-compatible spectrum and hence they will ultimately get into Roaming Agreements amongst themselves to offer maximum coverage to their subscribers. 

Another thing that the existing incumbent operators will be worrying about is: rapid erosion in the Average Rate per MB they are able to charge after Reliance Jio starts commercial operations. At the moment the Big-3 are able to charge around 23 to 25 paise per MB. But I am expecting that the rates will rapidly fall to something like 10 to 15 paise per MB within 6 months of Jio's launch. So we can call it a double-whammy for all the existing operators. On one hand a part of the existing as well as incremental Data consumption will start shifting to Reliance Jio, while on the other hand the rates will also fall at a rapid pace in the initial few months. We could see some knee-jerk reaction in the first few months from all operators as they try to protect their revenues & market shares as much as possible. Things might start stabilising about 3 quarters after launch of Reliance Jio's operations.

Until now the combined 3G network capacity of all operators has been falling short of the market demand. Hence the user experience has been like 'kabhi khushi...kabhi gham'. Once Reliance Jio opens it's gates, a Huge Empty Network capacity will become available, which will try & pull subscribers from all angles. It might take a couple of quarters to analyse how long before the surging demand is able to completely consume the available supply (capacity). We will see rate corrections happening until the supply (network capacity) is substantially more than the demand. Things will only stabilise after that. As per my guess, we are barely 6-weeks away from getting to experience Reliance Jio's 4G services. So let's just spend these 6-weeks in anticipation of some big excitement!!