The pre-Reliance Jio (RJio) era had seen the industry galloping at 12-13 percent a year. But in fiscal 2018, adjusted gross revenues are expected to decline ~3 percent on-year, given the drastic reduction effected by incumbents in voice and data tariffs to counter RJio’s onslaught.

In fiscal 2019, growth is expected to rebound to 12-14 percent on-year, led by data traffic growth, as well as incumbents' focus on high revenue generating 4G subscribers.

The reduction in data tariffs since the launch of RJio has led to a free fall in average data realization per MB from ~20 paisa per MB as of September 2016, to ~2 paisa per MB as of September 2017. Growth hereon is expected to be volume-driven, with data traffic estimated to rise 3x on-year in fiscal 2018, though in 2019, the high base will tamp it down to ~30 percent.

The industry’s operating margin is expected to contract to ~27 percent in fiscal 2019 from 31.7 percent in fiscal 2017. Reduction in interconnect usage charges by the Telecom Regulatory Authority of India, coupled with increase in network operations cost on account of expansion in 4G infrastructure and coverage, amid pricing pressures will lead to this decline.

4G subscriber additions are gaining momentum, while 2G and 3G are on the decline. Increasingly, this will also open up space for spectrum, which is being used for 2G/3G services, to be used for 4G services. Thus, players are focusing on devising 4G-led strategies for providing a better experience, leading to high data usage, and thereby revenue. 4G subscribers would account for ~ 30 percent of total subscribers in fiscal 2019 higher from 11 percent by end of fiscal 2017.

Fiscal 2018 witnessed a series of consolidation and exits in the industry. Bharti Airtel is acquiring the consumer mobile business of Tata Teleservices, which will give it access to the latter’s ~190 MHz spectrum and bolster 4G coverage. Also, RCom has also agreed to sell off its wireless asset to RJio, which will strengthen the latter's position in the industry as it will acquire spectrum in an efficient band of 800/900 MHz from RCom. Aircel has decided to halt its services in six circles as well by the end of January 2018. Idea and Vodafone are in the process of completing their merger which can create the largest telecom player for India.

The Telecom Commission’s decision to relax spectrum holding cap in Jan 2018 is likely to speed up the merger of Vodafone India and Idea Cellular. It will also ease the announced acquisition of RCom’s spectrum by RJio. It will help existing smaller players to exit non-viable circles by selling spectrum to stronger players as well, and consolidate their position in only profit-earning circles. Additionally, an increase in deferred payment period from 10 years to 16 years will lower the spectrum payment outgo of the industry by ~Rs 105 billion in fiscal 2019 and by ~Rs 500 billion cumulative until fiscal 2022. This will help players better manage cash flows and lower debt requirements.

Budget expectation

The industry expects the Goods and Services Tax rate to be lowered to 12 percent from the current 18 percent in Union Budget 2018-19. Further, the government is expected to ease spectrum usage charges and licence fees to 1 percent of adjusted gross revenue, and to lower basic customs duty (currently 10 percent) on import of 4G equipment. – Money Control



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