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Telecom

Telecom. 1. 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. Pre 1995. Govt Monopoly Tele-density was less than 1%.

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Telecom

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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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