Power Pack

Telecom

1
•Regulatory and Competitive Factors :3

•Key Operating Metrics :8

• Reliance Jio – Overview and Competitive Advantage : 21

•Impact of Reliance Jio on Top 3 Players : 26

•Future Outlook : 33

2
Pre 1995
• Govt Monopoly
• Tele-density was less than 1%

1995 - 1998

• Sector opened up for the first time to private players

• But the tele-density did not increase (only 0.88 mn customers were added in
the 3 years, of which half were in Mumbai and Delhi)
•This is due to:
•Fixed licensing structure
• less competition (only 2 players were allowed per circle)
1998-2003
• Licensing structure was changed to revenue sharing model
• 4 competitors were allowed per circle
• Subscriber base increased to 13.3 mn
2003 - 2009

• Golden period for the industry

• Govt. implemented CPP
• With more subscribers, cost came down
• Telcos had both revenue and profit growth
2009 - 2013
• Price wars
• Negative regulatory environment (2G scams, Vodafone retrospective
taxes)
• Profitability reduced and debts increased

5
 ARPU decreased from Rs. 127 to Rs. 89 between 2016-17 due to
competition from Reliance Jio.

ARPU TRENDS BETWEEN 2009 TO 2013

 2013 to Reliance Jio’s launch (in September 2016)

•Financial performance improved since 2013 mainly due to the following

reasons:
• Increase in tariffs by the major operators.
• Increased proportion of Data revenues
•Reduction in number of players – due to cancellation of licences
•Easing of spectrum sharing, Spectrum trading and M&A norms
•Removal of inactive subscriber base since 2012
•Sharing of tower infrastructure

7
Key Operational Metrics
 KEY OPERATING METRICS

• Teledensity
• Pre-paid vs Post paid
• GSM Vs CDMA
• Share of Voice and Data in the overall revenues
• Share of 2G, 3G and 4G in the data traffic
• ARPU
• Minutes of Usage
• Data Traffic and tariffs
• Market Share
• Inter User Connectivity (IUC) charges
• Spectrum portfolio of major players
 Overall , Tele-density is 93% (Urban -160% Rural-59%) .

TELEDENSITY

Source: Crisil Research and Trai

 More than 95% of the subscriber base in India are pre-paid.

PRE-PAID VS POST-PAID
 From 30% share in 2005, CDMA’s share in the subscriber base has
come down to less than 1%.

GSM VS CDMA SUBSCRIBER BASE

 Data as percentage of revenues have grown from 5% in 2012 -13 to
43% in 2018-19 and expected to reach 68% in 2021-22.

DATA AS PERCENTAGE OF REVENUES

Source: TRAI, Crisil Research

 More than 98% of the data traffic will be through 4G network by
2021-22.

SPLIT OF DATA BY NETWORK

Source: TRAI, Crisil Research

 Jio’s launch helped in data tariffs falling to rock bottom but
exponential increase in data usage.

DATA USAGE AND TARIFFS (ARMB)

DATA USAGE PER
DATA TARIFFS (ARMB)
SUBSCRIBER (MB)
 ARPU has been increasing till 2016 after hitting the bottom in 2012
but again dropped after Reliance Jio’s launch

ARPU TRENDS
2009 to 2013 2015 to 2019

Source: TRAI
 Before the launch of Reliance Jio, Bharti, Vodafone and Idea were
the top 3 players in both subscriber and revenue market share.

Market share before Reliance JIO launch

SUBSCRIBER MARKET SHARE REVENUE MARKET SHARE

Mar- Mar- Mar- Mar-

2015
2014 2016
2015 2015
2014 2016
2015

Source: Industry, TRAI

 Reliance Jio has become the 2 nd largest player with 31.7% revenue
market share.

Revenue Market share After Reliance

JIO launch
Mar- Mar- Mar- Mar-
2014 2015 2014 2015

Source: https://economictimes.indiatimes.com/industry/telecom/telecom-
news/jio-pips-airtel-to-claim-no-2-spot-in-revenue-market-
share/articleshow/69733356.cms
SPECTRUM PORTFOLIO OF MAJOR PLAYERS

Source: TRAI, Crisil Research

INTER USER CONNECTIVITY CHARGES

• In October 2017, TRAI reduced the IUC charges by 57% from 14 paisa per

minute to 6 paisa per minute.

• This has majorly impacted the incumbents Airtel, Vodafone and Idea as these

players are the net IUC gainers and benefitted Jio.

• Airtel, Vodafone and Idea’s margins got affected negatively by 4 to 5%.

• IUC will become 0 paisa per minute starting January 2020.

Reliance Jio
 RELIANCE JIO: OVERVIEW

•Investment of Rs. 1.5 lac crore (Mukesh Ambani said that it is the largest startup
in the world)
•Launched in September 2016
• Analysts expected Reliance Jio to acquire 30 mn subscribers in the first year and
130 mn subscribers by 2019-20.
• But Jio actually acquired 109 mn subscribers in the first 7 months of it’s launch
by 31st March 2017.
• In April 2017, the company converted about 70% subscribers into paid
subscribers.
•In January 2019, Reliance Jio had acquired 280 mn subscribers.
•Became the 3rd largest player beating Idea and only behind Airtel and Vodafone.
•What Idea cellular achieved in 17 years, Jio did in 16 months.
Reliance Jio : Excerpts from Mukesh Ambani’s interview to Economic times
dated 8th September 2016
•Initial response for Reliance Jio exceeded expectations by a factor of 100
• We will offer data at 1/10th of the global rates but we are not going to lose
money.
•We are not looking to make a killing, but we are looking to make a high-teens
return on our capital which is 18-19%.
• I don’t see Jio as a telecom business. I see it as an internet business .This is a
multi-wave game and we have just started with Jio. What you can build on top
of Jio Digital Life is virtually unlimited. We have the potential to give
something magical every quarter.
•I see sustainability of 4-5 operators in Indian Telecom market.
 JIO’S Advantage

•Jio was the only company with Pan India spectrum till mid-2016 footprint have
4G licences in all the 22 circles whereas Bharti Airtel, Idea and Vodafone, which
have 4G licence in only 15, 12 and five circles, respectively.
• Between 2010 to 2016, built 2,50,000 kilometres route of fibre optic cables and
90,000 eco-friendly 4G towers work to provide unmatchable 4G coverage in all of
India’s 22 telecom circles.
• Jio has successfully created the largest only 4G and LTE networks not only in
India, but in the world.
• While all the existing network providers are using a modified 2G/3G
infrastructure to provide 4G in India, Jio has set up a Greenfield network that
offers higher bandwidth and faster speeds.
•The Jio network is also future-proof and capable of offering 5G and 6G
connectivity as and when the technology materialises.
 JIO’S FOUNDATION

•Reliance Jio is also the first teleco to launch a ‘VoLTE-only’ (Voice over LTE)
network in India.
• This technology eschews the fluctuations of the 2G/3G network in favour of
high-speed data transfer which allows for more robust connectivity and clearer
voice calls.
How Reliance JIO impacted the

other Top 3 players?

 Other top 3 players are Airtel, Vodafone and Idea

 How Reliance Jio impacted these players on the following critical

parameters?

 Revenue Growth

 Operating Margins

 Net Profit

 Debt
 ARPU of the other top 3 players has fallen by 25% in the 6 months
after Jio launch and 45% after 2 years of Jio’s launch.

ARPU
6 months after JIO 2.5 years after JIO
launch launch

Source: Company Data, Crisil Research

 Revenue growth of top 3 players have been negative after 2016.

TREND IN THE REVENUE GROWTH OF TOP 3 PLAYERS

Source: Trai, Crisil Research

 EBITDA margins have come down by 4.7% since 2016-17 .

COST STRUCTURE OF TOP 3 PLAYERS

Why Ebitda reduced?
• Network Operating
costs increased
because of
investments to
expand 4G
infrastructure.
• Increase SG&A costs
to match up to JIO.

Source: Trai, Crisil Research

 JIO continue to show impressive revenue and profit growth while
competitor’s struggle.

PROFIT TRENDS

JIO’S REVENUES AND PROFITS Vodafone Idea

Revenues in Annual Net Profit Annual Q4 2019: Rs. 4878 cr (loss)

Rs. Crs Growth in Rs. Crs Growth Q3 2019: Rs. 5005 cr (loss)
(2018-19) (2018-19) Bharti Airtel
38,838 92.7% 2,964 250% Q4 2019: Rs. 86.20 cr (profit)
Q3 2019: Rs. 36.6 cr (loss)

Source: Company Reports

 Debt of the top 3 players have increased sharply in the last couple of
years.

NET DEBT TO EBITDA OF TOP

3 PLAYERS

Source: Crisil Research

Future Outlook
 ARPU is expected to increase after FY 19.

ARPU FORECAST

Source: Company reports, CRISIL Research

 ARPU is expected to increase after FY 19.

REVENUE FORECAST

Source:, CRISIL Research

 EXPECTED FUTURE TRENDS
• Revenue growth to be primarily driven by a surge in data subscribers and
traffic
• Data to constitute over 68% of the wireless revenues by FY22, significantly
up from 27% in FY17 and ~35% in FY18
• Data tariffs will marginally increase from 1.9 paisa per mb in 2017-18 to 2.7
paisa per mb in 2021-22.
• Capital expenditure will come down after 2019-20 as the players would
have created adequate 4G infrastructure.
• EBITDA margins will improve from 2019-20
• Jio will maintain and improve profitability while Airtel and Vodafone-Idea
will return to profitability from 2019-20.