'Telcos may see steady Q2 as SUC saving aid margins; 5G updates key focus'

Telecom companies are expected to witness "steady" revenue growth in Q2FY23 with slight sequential uptick in average revenue per user albeit softer net additions, while SUC (spectrum usage charges) savings are seen lifting margins, say analysts.

Amid mega 5G network deployments by telcos, market analysts will be keenly tuning in to management commentaries on pace of roll-out for next-generation services, capex outlook and markers on tariff hikes.

"We expect Indian telcos to report a steady quarter with stable ARPUs and slowing net adds. Margins would be higher q-o-q as we get 45-50 days benefits of lower SUC," BofA Securities said in its Q2 earnings preview for the sector.

India's largest telecom operator Reliance Jio is expected to come out with its Q2 report card on October 21 (Friday), while Bharti Airtel is scheduled to announce its results on October 31.

In the earnings' preview for the sector, ICICI Securities anticipated "steady revenue growth" and said margins may jump on lower SUC.

"Q2FY23E estimate for telcos suggests steady mobile revenue growth aided by one additional day and subscriber growth for Bharti/ Reliance Jio," it said.

It expected margin expansion for mobile operators due to negligible spectrum usage charges.

"SUC was 3-3.5 per cent of AGR (Adjusted Gross Revenue) which has reduced to negligible on the purchase of spectrum in July '22 auction; full benefit of low SUC will likely reflect in Q3FY23E," the note by ICICI Securities said.

Average realisation per subscriber measured as ARPU is likely to show growth of 1.5-3 per cent on quarter and will be aided by one additional day and premiumisation, it said.

Jefferies said it expects the second quarter of FY23 to be a "steady" one, "with Bharti/Jio reporting 2-4 per cent q-o-q revenue growth".

"We expect modest subscriber adds for Bharti and stronger adds for Jio, similar to 1Q," Jefferies said.

Jefferies observed that ARPUs are likely to witness a 1-2 per cent sequential uptick driven by higher number of days in the quarter and better subscriber mix.

BNP Paribas sees the Indian telecom industry posting strong year on year revenue growth (19 per cent) in the second quarter of FY23, although the sequential growth (at 2.4 per cent) is likely to be weaker compared with the previous two quarters.

This is because tariff hike benefits are largely behind and subscriber additions are likely to be muted, it said.

The Q2 score card comes amid large-scale network deployments across the country for 5G services, the much-talked about next-generation technology that promises ultra-high internet speeds, lag-free connectivity, and new-age applications.

Hence updates on 5G roll-out, capex and cues on tariff hikes will be in focus for sector analysts.

Bharti Airtel has started rolling out 5G in eight cities of Delhi, Mumbai, Chennai, Bengaluru, Hyderabad, Siliguri, Nagpur and Varanasi, while Jio has started beta trials in Delhi, Mumbai, Kolkata and Varanasi.

The 5G services will progressively cover the entire country over the next couple of years -- Jio promises to do that by December 2023 and Bharti Airtel by March 2024.

Meanwhile, top mobile phone makers, including Apple and Samsung, have said they will upgrade the software for their 5G-enabled phones in India.

Prime Minister Narendra Modi on October 1 launched 5G services amid much fanfare, with leading telecom operators Bharti Airtel and Reliance Jio outlining plans for the roll-out of the services in a select cities.

But most users in those select cities haven't yet got smooth 5G services, leading to a blame game -- telecom operators blame the delay in smartphone companies pushing out required software patches over the air, and the handset manufacturers rue patchy infrastructure.

With 5G not just enabling faster internet but also holding the promise of rapid economic progress and boosting job creation, the government has asked companies to get cracking now.

And many companies have started falling in line -- last week many smartphone players committed specific timelines for upgrading the software for their 5G-enabled phones.