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Telecommunications Industry Evolution: From Govt Monopoly to Reliance Jio Impact

Explore the journey of the Indian telecom sector from pre-1995 to post-Reliance Jio era, analyzing regulatory changes, competitive factors, key metrics, and the disruptive influence of Reliance Jio on major players. Understand the shifting dynamics, financial impacts, and future outlook of the industry.

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Telecommunications Industry Evolution: From Govt Monopoly to Reliance Jio Impact

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  1. Telecom 1

  2. Regulatory and Competitive Factors : 3 • Key Operating Metrics : 8 • Reliance Jio – Overview and Competitive Advantage : 15 • Impact of Reliance Jio on Top 3 Players : 18 • Future Outlook : 27 2

  3. 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) 3

  4. 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 4

  5. 2009 - 2013 • Price wars • Negative regulatory environment (2G scams, Vodafone retrospective taxes) • Profitability reduced and debts increased 5

  6. 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 6

  7. After September 2016 – Post Reliance Jio’s launch • Intense Competition • Repeat of Price War • Heavy debt for Telcos • Vodafone – Idea and other Mergers 7

  8. Key Operational Metrics

  9. KEY OPERATING METRICS • Teledensity • Pre-paid vs Post paid • GSM Vs CDMA • ARPU • Minutes of Usage • Data Traffic • Voice RPM • Data ARMB

  10. ARPU has been increasing gradually after hitting the bottom in 2012 ARPU TRENDS BETWEEN 2009 TO 2015 Source: TRAI, Crisil Research

  11. ARPU is expected to increase on the back of data usage. EXPECTED TRENDS IN OPERATING METRICS Source: TRAI, Crisil Research

  12. Data as percentage of revenues have grown from 8% in 2012 -13 to 22% in 2015-16 and expected to reach 64% in 2020-30. DATA AS PERCENTAGE OF REVENUES Source: TRAI, Crisil Research

  13. Reliance Jio

  14. 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.

  15. 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.

  16. How Reliance JIO impacted the other Top 3 players in the first 6 months of it’s launch?

  17. ARPU of the top 3 players has fallen by 20% since Jio’s launch. ARPU ALL FALL DOWN • JIO ended all it’s free services on March 31,2017 • Jio’sARPU was Rs. 300 in May 2017 Source: Company Data, Livemint

  18. In the 6 months after Jio’s launch, the revenue of the Top 3 players have fallen by 10% and the EBITDA fallen by 20 to 26%. REVENUES AND MARGINS CRASH LANDING TOP 3 PLAYERS’ REVENUE GROWTH TOP 3 PLAYERS’ EBITDA GROWTH Source: Company Data, Livemint

  19. Data yields almost halved after Jio’s launch while the voice yields have fallen by 1/4th YIELDS Source: BoAML Research, Company Data

  20. Telecommunications companies saw their total debt burden rise 20% percent in financial year 2016-17 to Rs 3,59,940 crore. RISING DEBT Note: Vodafone infused Rs. 47,700 crore equity in it’s Indian operation Source: Bloomberg

  21. Interest coverage ratio has reduced drastically. REDUCING INTEREST COVERAGE Source: Bloomberg

  22. The debt-to-EBIDTA ratios have also deteriorated suggesting that fresh funding would be difficult to come by. HIGHLY LEVERAGED BALANCE SHEETS Source: Bloomberg

  23. Airtel and Idea arrested the fall in the margins in the March quarter, after a sharp decline in the December quarter. CLAWING BACK Operating Margins • All three companies claim that things have stabilised since Reliance Jio started charging for its services.  • Vodafone experienced a marginal increase in margins in the March quarter. Source: BoAML Research, Company Data

  24. Jio’s launch notwithstanding, the top 3 players managed to increase their subscriber base. SUBSCRIBER BASE Source: Company data

  25. Future Outlook

  26. ARPU is expected to increase on the back of data usage. EXPECTED TRENDS IN OPERATING METRICS Source: TRAI, Crisil Research

  27. Industry revenues will grow at a CAGR of 11-13% between 2017 to 2021 and revenues from data will constitute 64% of the revenues. INDUSTRY REVENUES Source: TRAI, Crisil Research

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