Jio effect: 5 things that show telecom sector will never be the same again

If the December quarter was bad for the telecom sector, the March quarter could be worse. The full impact of Reliance Jio (RJio) will be felt from the latter, as people were still trying its service and the size grew to peak levels towards the end of calendar year 2016. Companies are likely on every parameter — realisations, volumes, revenues, margins, debt — to report numbers at multi-year lows or peaks.

Here are five things in the March quarter which stand out:

ARPU in, all other metrics out: 

The launch of free offers and attractive packages has made a number of operational metrics redundant, such as data revenue per megabyte and average revenue per minute. Harsh Jagnani of ratings agency ICRA says that given the bundled offers by all operators, the ‘primary metric which will be tracked’ is going to be average revenue per subscriber or ARPU. RJio’s bundled offers, allowing users unlimited calls and data usage, is the prime reason for this big change.

Revenue dives as ARPUs hit 5-year lows:

CRISIL Research estimates that March quarter revenues for the four listed entities will fall by 10 per cent year-on-year (y-o-y), as compared to the five per cent y-o-y fall in the December quarter. The reason for the sharp decline is not only the fall in rates, for both data and voice. It is also the dip in volumes, as a large amount of data usage is shifting to RJio. Sector ARPUs, it is estimated, will fall to a five-year low of around Rs 150. With RJio coming out with a new deal for users, the pain will aggravate and extend to the June quarter.

Rs 300 the new ARPU base for top customers: 

With RJio launching its Rs 303 plan and Bharti Airtel responding with its Rs 345 plan, analysts expect users to downgrade from premium plans to those between Rs 300 and Rs 350. In fact, given Bharti’s new unlimited plans, CLSA expects its ARPUs for FY18 in the India mobile business to fall by 15 per cent. About 11 per cent of the user base has an ARPU over Rs 350. From these, about one per cent have ARPUs over Rs 800, a larger portion of which will probably shift to the sub-Rs 350 plans.

Share of data revenue in FY17 has doubled in 3 years:

All over the world, there is a shift to data. A person can now make both audio and video calls by using data networks and access multiple applications through these. In India, too, there has been a shift. From 12.5 per cent of revenue in FY14, data revenue more than doubled to 26 per cent in FY17 and is expected to again double to 50 per cent by FY19, believes CRISIL Research’s Ajay Srinivasan. Voice has become a commodity and most growth is coming from higher data usage, he adds.

More leverage, more debt: 

Debt levels could hit the Rs 4.5 lakh crore-mark at the end of the March quarter, possibly the highest for the sector so far, believes Jagnani of ICRA. This had stood at Rs 4.1 lakh crore a year before. Most of it is, however, due to the Rs 65,000 crore of debt taken due to the spectrum auctions in October 2016. Companies have had to depend on external funding, equity infusion (Vodafone) and asset sales (Airtel), helping to keep the debt in check. The ratio of net debt to operating earnings is 5.6.