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    Airtel, Vodafone & Idea’s FY16 to FY19 operating profits may halve: Crisil

    Synopsis

    “The intense price war in telecom, which started in September 2016 with Jio’s entry, is showing no signs of abating, but has become more brutal, and the pain is expected to continue this fiscal too,” Crisil said.

    TelcosAgencies
    Crisial said the telecom industry had undergone a paradigm shift in data offerings following Jio’s entry from a scenario of GBs per month to GBs per day.
    The operating profits of incumbents Bharti Airtel, Vodafone India and Idea Cellular is estimated to halve between FY16 and FY19, triggered by a 1,000 basis points (bps) likely contraction in their operating margins amid continuing price wars since the entry of Reliance Jio Infocomm, rating agency, Crisil said.

    The situation, the rating agency said, “is unlikely to improve in FY19,” and estimates the consolidated margin of the top three incumbents to “shrink 250-300 bps on-year” due to an increase in network operations cost and deterioration in ARPU, a key performance metric. The rating agency attributed the ARPU (average revenue per user) decline to competition no longer being limited to the prepaid platform, but entering the postpaid segment as well.

    “The intense price war in telecom, which started in September 2016 with Jio’s entry, is showing no signs of abating, but has become more brutal, and the pain is expected to continue this fiscal too,” Crisil said in research report Monday.

    Small wonder, Crisil also expects the “top-three incumbents to see a 3-5% on-year shrinkage” in their cashflows from operations.

    The rating agency also estimates the telecom sector’s Ebitda margin will contract further by 150-200 bps due to the full year impact of the cut in interconnect charges.

    The telecom regulator had cut the IUC for voice calls by 57% to 6 paise a minute, starting October 2017, from 14 paise a minute earlier.

    Crisil expects the telecom industry’s annual revenue to shrink 6-8% on-year in FY19 amid continuing price wars that is also likely to see data realisations of incumbent carriers hit rock bottom.

    Amid heightened competition following Jio’s entry in September 2016, the telecom industry has been consolidating.

    India’s No. 2 and No. 3 telcos Vodafone India and Idea Cellular are merging, as have Norway’s Telenor, Tata Teleservices and Tikona with No. 1 Bharti Airtel. Reliance Communications and Aircel have wrapped up their wireless operations.

    However, the rating agency said an estimated “45% jump in data volumes growth is slated to limit” the sectoral revenue damage.

    Crisil expects the situation to improve only post-FY20, following closure of the Vodafone India-Idea merger, likely this month. According to the rating agency, the sole bright spots are the exponential growth in data traffic and upsurge in digital content consumption.

    “Availability of cheap 4G-enabled devices along with all-time low data tariffs are driving the shift in subscriber mix towards 4G and telcos are increasingly making content partnerships with over-thetop (OTT) players to drive data usage,” Crisil said.

    Crisial said the telecom industry had undergone a paradigm shift in data offerings following Jio’s entry from a scenario of GBs per month to GBs per day. “Availability of appealing original content and major events such as FIFA World Cup is likely to fuel data usage in FY19, which will ensure data usage increase 45% despite a high base.”


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