Telecom Subscriber Base (VLR) Analysis for Apr-Jun'16 quarter.

About 3 weeks after the end of every month, all Telecom Operators declare their Circle-wise Subscriber Base, which basically includes all the Activated Sim Cards out in the market. This also takes into consideration the Sim Cards that have been De-activated due to MNP requests or 90-days Zero Use period. But thanks to the multi-Sim usage profiles of several lakhs of Indians, not all Activated Sim cards are in use all the time. For this the TRAI started collating the VLR (Visitor Location Register) Database from all operators and declaring the highest VLR Percentages for every respective month. VLR basically tells us how many Sim Cards of each operator was actually hooked to it's Network alteast for some time during that respective month. But all this Data Collation takes additional 4-6 weeks. The VLR Data for the month of June'16 was declared by TRAI on 9th of Sept.'16, i.e. nearly 10 weeks after the end of June month.

I have now started arranging Operator-wise All-India Subscriber Base Information from the period ending March'16, into my Spreadsheets, in order to analyse the changing scenario in the Telecom market & it's possible co-relation with the Revenue performances of each operator. I had presented my views on Telecom AGR numbers for Apr-Jun'16 quarter a couple of weeks ago at this link. Bharti Airtel was the clear Best Performer in terms of Q-o-Q growth in AGR, followed by Vodafone and then Idea Cellular. It will be interesting to see how the VLR Subscriber numbers for each operator have changed during the quarter. Remember that Reliance Jio had started issuing it's Sim cards under the LYF Handset Preview Offer from the middle of May'16 and is estimated to have activated nearly 1 million Sim Cards during the quarter ending June'16. Another major development during the quarter was Closure of CDMA Operations of Reliance Communication (ADAG) across the country during the month of June'16. The company wished to switch it's CDMA users to it's 4G network, which it was launching in collaboration with RelJio, but everyone knows that the switchover wasn't smooth for the company & it's subscribers. This CDMA closure has caused a major upheaval in the numbers reported by RCom.

The Table here displays the Operator-wise All-India VLR % reported by TRAI for every month since March'16. This figure normally considers the Highest VLR number for that particular month. As we can see, the Overall Industry-wide VLR % number has seen a nominal 64 bps decline between March'16 to May'16, but a sharp 186 bps decline during June'16. RCom's VLR % dropping from 89.10% to 72.50% is the main reason for a sharp decline in June'16. Let's ignore RCom for the time being as it forms less than 3.5% of the Industry's AGR, despite a much stronger subscriber market share. It is interesting to note that each of the Top-3 operators, i.e. Airtel, Vodafone & Idea, have seen a small erosion in their VLR % during the Apr-June'16 period. While Airtel has seen an 80 bps decline, Idea has reported a 108 bps erosion and Vodafone has posted the biggest decline at 136 bps. These VLR % declines experienced by the three largest operators is most certainly due to two factors: Increased competitive pressure from BSNL and few other smaller operators & secondly from the fact that nearly 1 million RelJio Sim cards were activated during the second half of the quarter. RelJio has not yet started reporting it's Subscriber numbers to TRAI as it was undertaking 'Testing' of it's Networks until 5th of September'16. Hopefully we should be getting RelJio's subscriber numbers from September'16 onwards.

The Table alongside compares the EoP VLR Subscriber base of each operator at the end of March'16 and June'16 to know the progress the made by each of them. The Highlight of the table has to be RCom, which has lost over 2 crore VLR subscribers during the quarter, with 90% of them during the month of June'16. What is surprising is that RCom was claiming to have about 5 million CDMA subscribers, which it was asking to switch to 4G. But the drop in VLR subscriber base is 4 times of that number. If the VLR numbers for July & August don't post some big correction, then RCom is potentially going down the Closure path in the coming quarters. Apart from RCom, Vodafone was the biggest loser during the quarter, in terms of VLR subscriber base, having lost over 1.3 million subscribers, which is quite a big surprise. Tata Tele was next with a loss of nearly 0.8 million, which is not surprising given the fact that it is also curtailing it's CDMA operations in several circles. In all likelihood, Tata Tele must has been a Net Gainer in VLR subscribers on the GSM front. Idea was the next big loser with nearly 0.7 million users, possibly mainly due to reduced number of In-roamers on it's network. Until a few months ago, subscribers of Airtel & Vodafone were using Idea's 3G networks in certain circles via 3G-Roaming agreements. Airtel has pulled out of these agreements after having launched 3G service on it's own in 21 of the 22 circles. This must have impacted Idea's VLR subscriber numbers as well as Revenues to some extent.

In terms of percentage gainers, Aircel added nearly 2.5% (nearly 1.6 million) new VLR subscribers during the quarter. But Bharti Airtel was the biggest gainer in terms of Gross VLR subscribers addition at nearly 2.3 million new users. Airtel's VLR subscribers market share at the end of June'16 now stands at just over 27%, commanding a huge 6%+ lead over 2nd placed Vodafone. BSNL/MTNL too added nearly 0.7 million new VLR subscribers, followed by Telenor which added a little under half a million new users. In terms of VLR subscribers market share, Aircel is now closing in on BSNL/MTNL's combined base. Both Aircel as well as BSNL are aggressively marketing their respective 3G services with some very attractively priced Data packs. It will be interesting to see is BSNL/MTNL manages to stay ahead of Aircel in the coming months or not.

RelJio is expected to have started impacting the VLR numbers of all existing operators to a very small extent from June'16 onwards, but the impact is expected to get much larger from Aug or Sept onwards. With RelJio having announced a full scale launch from 5th September, we can expect the operator to start declaring it's subscriber numbers from the current month. I will try & post a fresh update on VLR numbers status every month from hereon, possibly as soon as I receive the numbers.

Telecom Analysis - June Quarter AGR Numbers

August'2016 has been an action-packed month for the Telecom industry. Mainly because Jio's activities have built up quite a bit of pace, which has got all the existing operators running for cover & fire their own ammunition. After bundling a Jio 4G Sim with every LYF handset sold (with 90 days of Preview Offer) from the month of May'16, which picked up considerable pace only in June and July, Reliance Industries started offering the Preview Offer Sim cards to anyone with a compatible 4G handset from a huge list of manufacturers in the second half of August. Reliance Jio was expected to have activated over 3 million 4G Sim cards under 'Test' by the end of July'16, but the mad rush over the last 2 weeks must have helped it double the Active Sim Cards number by the end of August'16. With so many users eligible to use Free 4G Data and even Voice Calls (to some extent) for a period of 90 days, it is bound to impact the Revenue numbers of all existing operators for the September quarter.

TRAI recently declared the Operatorwise & Circlewise Revenue numbers for June'16 quarter. This is probably the last quarter before Reliance Jio starts making a noticeable impact on numbers for all other existing operators. Hence it becomes important to see which operators have gained pace just before the real war begins. In my analysis here, I have considered the Circlewise Adjusted Gross Revenues for all operators. (RCom has not declared it's numbers for June'16. Hence I have considered a 3% drop from it's respective March'16 numbers, just to get some approximate value. In any case RCom forms just about 3.3% of the Industry's AGR. Hence it's not going to impact the actual numbers much.)

The AGR numbers for the entire industry has posted a Q-o-Q growth of around 1.3%. As expected the Top-3 operators have managed to grow at a better rate with Airtel leading the growth charts, followed by Vodafone (surprisingly) & then Idea. Tata Tele and Telenor too have posted marginal Q-o-Q growth, while Aircel has posted a marginal drop. The biggest shocker came from BSNL/MTNL combine. It's AGR numbers are down by nearly 19-20% Q-o-Q, after having posted a strong 10+% growth in March'16 quarter. It seems as if BSNL/MTNL booked some advance revenues during March'16 quarter in order to make the numbers for the previous fiscal look good. Will be interesting to see the numbers & market share BSNL/MTNL manage to post for Sept'16 quarter. BSNL was the first to announce super-aggressive 3G tariffs offering 10 GB Data for just Rs.549/- and Unlimited (No FUP) Data for Rs.1099/-. These tariffs have become applicable from 25th August.

Metro Circles: Thanks to the massive fall reported by BSNL/MTNL, all other operators have seen their market share jump up Q-o-Q. Vodafone continues to lead here with over 34% market share & a healthy growth number too. But Airtel clearly seems to be catching up with stronger growth. Both Airtel & Vodafone are offering 3G as well as 4G service in Mumbai, Delhi & Kolkata circles. Idea is clearly losing this race, first by being a late entrant and now because of inability to offer 4G in all the 3 circles and No 3G in Mumbai circle. Surprisingly Tata Tele has managed to post marginal growth despite offering only CDMA services in Delhi and only 2G GSM services in Mumbai & Kolkata circles. It's Wireline business seems to helping it here. But still it's commendable to see Tata Tele fighting for the 3rd spot in the Metro Circles category with No 3G or 4G service.

Category-A Circles: Despite substantial fall reported by both BSNL and Telenor, the AGR for Category-A Circles has posted a 1.2% growth. Airtel has extended it's market share lead with fastest growth rate. Airtel now commands a third of the revenues in this category, a full 140 bps improvement over March'16 number. Vodafone & Idea too have seen 50 bps and 20 bps improvements. Vodafone growing faster than Idea in Category-A surprised me. I was expecting Idea to do better as it had 4G presence in more circles in this Category than Vodafone. Let's see if things change in the current quarter. Tata Tele has again done a decent job here. Telenor's performance in Maharashtra & Gujarat circles was quite disappointing in June quarter.

Category-B Circles: This category has proved to be the fastest growing one during the June'16 quarter. Airtel has posted a super-strong near 10% Q-o-Q growth in AGR, but is still in the 2nd spot in this category. Idea continues to lead in this category despite a lacklustre 1.7% growth. While Idea lost 80 bps in market share, Airtel has gained 140 bps, thus bridging the gap considerably. Vodafone & Telenor too managed to post healthy growth rates in this category, which helped them enhance their market shares by a small extent. Vodafone again managing to outpace Idea's growth even in this category is really commendable. It will be interesting to see if Vodafone can manage to hold on to this momentum in the coming quarters. Telenor's UP(E) & (W) circles continue to do well and the operator is now comfortably placed at the 4th spot in these 2 circles with near 9% market share.

Category-C Circles: Airtel has taken another big leap here and is just a fraction away from the 50% market share mark. The rest of the 6 operators have managed to hold on to just over 50% of the market in this category. Vodafone, Idea, Aircel and Telenor have all posted decent growth and have also managed to inch up their market shares, all at the expense of BSNL. Another interesting point is: Telenor, which operates only in Bihar circle in this category, is now about 3 times bigger than Tata Tele in that circle, despite being a very late entrant. Telenor now commands a respectable 7.3% market share in Bihar circle. This is the only category where Aircel has managed to post some decent growth in AGRs. Tata Tele is the smallest operator here and may seriously look to close down it's operations in these circles in the near future.

Summary:

Airtel has clearly gained good momentum in June'16 quarter and is seriously pitching itself for some tough competition with RelJio. The announcement of the 'Mega Saver' pack earlier this week was one big step in that direction. Each of the existing operators is going to get hurt due to RelJio's services, but Airtel will clearly be hurt the least. It will be very interesting to see how Airtel's 2G+3G+4G operations across almost all 22 circles will fare against RelJio's pure 4G operations across all 22 circles. With aggressive Data packs, Airtel is trying it's best to retain it's Data subscribers. But RelJio is not looking at just Data subscribers, who are mainly focused in Urban & Semi-urban locations. RelJio is pretty serious about Voice Calls business too and hence has already built excellent 4G coverage even in Rural and remote areas.

I am expecting RelJio to grab the No.5 spot in terms of AGRs within 6 months of launch. RelJio is already having over 6 million active users on it's networks and it could easily be having around 20 to 25 million users by the times it completes 6 months of Commercial operations. With ARPU expected to be a minimum of Rs.300, RelJio could be generating quarterly Revenues of over Rs.2000 crores by then. But while doing so RelJio is expected to put a bigger hole in the combined AGRs of the rest of the operators as the over-competitive environment will bring down tariffs in a knee-jerk manner, while the increase in usage will happen only over a period of time.

As of now all eyes are set on RIL's AGM tomorrow, i.e. 1st September, when everyone is expecting to hear a definite date of RelJio's Commercial launch. My hunch is that it is not very far from now. Possibly well before the end of September'16.

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!!!