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    Jio effect: Q1 adjusted revenues of Top 3 telcos fall 4.7% sequentially

    Synopsis

    ​​While the Big 3 of Indian telecom posted lower AGRs — the revenue derived from licensed services — analysts estimate a negative AGR for Jio.

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    The fall in the AGR of the overall sector comes at a time when telcos are unhappy with the relief measures that an inter-ministerial panel appears to be finalising.
    KOLKATA: The telecom industry’s adjusted gross revenue (AGR) fell 4.7% sequentially in the fiscal first quarter as Bharti Airtel, Vodafone India and Idea Cellular each reported lower AGRs with heightened competition from Reliance Jio Infocomm weighing on their performance. This is going to reflect in government revenue as the companies pay their licence fee and spectrum usage charge based on AGR.

    While the Big 3 of Indian telecom posted lower AGRs — the revenue derived from licensed services — analysts estimate a negative AGR for Jio, which offers dirt-cheap data plans and free voice calls to customers. A price war that Jio’s entry brought to the telecom market has pulled down telecom tariffs, with analysts putting the average drop in prices since last year to around 30%.

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    This has benefitted consumers, who increased consumption of data, which though has not been enough to offset the impact on the companies. Bharti Airtel’s AGR dropped 4.6% sequentially to Rs 9,900 crore, while that of Vodafone India and Idea fell 2.3% and 3.8% to Rs 7,100 crore and Rs 6,200 crore, respectively, brokerage ICICI Securities said in a note, analysing data put out by the Telecom Regulatory Authority of India (Trai).

    The overall telecom industry AGR in the past quarter was Rs 28,300 crore. Jio’s gross revenue in the June quarter was Rs 1,100 crore, but its AGR was “a negative Rs 1,000 crore as its revenues were lower vis-à-vis high interconnect charge (IUC)” payouts, analyst Sanjesh Jain wrote in a note to clients.

    Analysts at UBS also held a similar view, saying “Jio’s IUC costs continued to rise sharply, and its negative AGR in the June quarter implied Rs 2,150 crore of interconnect payments.” It put the payout for the prior quarter at Rs 1,500 crore.

    Jio pays a sizeable sum as interconnect charge as a bulk of its call traffic terminates in the networks of the three bigger rivals, who together account for about 73% of the market based on the number of subscribers. IUC is a charge paid by the operator of a network from where a call originates to the telco where it terminates. This is the reason why Jio has been pressing the sector regulator for reducing the current 14 paise a minute IUC charge and its rivals seeking an increase.

    The fall in the AGR of big phone companies and that of the overall sector comes at a time when telcos are unhappy with the relief measures that an inter-ministerial panel appears to be finalising.

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    The inter-ministerial group, constituted a few months ago to examine financial stress in a sector which is sitting on a mountain of debt, is likely to merely give the companies more time to pay for the airwaves they bought in auctions and cut interest rate payable on the dues, ET reported Wednesday. Phone companies see this as grossly inadequate to fix the structural problems plaguing the sector.

    “The fall in industry AGR in the June quarter should give the IMG reason to understand that the telecom sector is still under deep financial distress, and there are no green shoots,” said Rajan Mathews, the director-general of the Cellular Operators Association of India that represents top telecom firms. Telecom industry revenue in the June quarter fell 28% compared to the previous corresponding period, Mathews said.

    Accordingly, he said, it is imperative that the “IMG grants relief measures to enhance the financial viability of the sector by reducing taxes and levies, extending the deferred payment period of spectrum bought through auctions and through a substantive reduction in interest rate on spectrum-related dues”. The top three companies, however, registered year-on-year gains in their respective AGR market share in the June quarter.

    Airtel’s AGR market share in the June quarter rose 1.75 percentage point to 34.9%, while Vodafone India and Idea’s climbed 1.80 and 1.65 points to 25% and 21.8%, respectively. But quarter-on-quarter, Bharti’s AGR market share remained flat. Vodafone and Idea saw modest 0.6 bps and 0.2 percentage point gains, respectively, amid heightened competition from Jio.

    The Big 3 consolidated their combined revenue market share (RMS) position in the June quarter, controlling 77.3% of the wireless market, reflecting a 1.8 percentage point gain from a year earlier. “Bharti has been the best performing telco since Jio’s launch with the least amount of revenue decline among peers, and its 34.2% RMS as of June is at an all-time high,” said Goldman Sachs, in a separate note. Both Bharti and Vodafone added 0.4 percentage point sequentially, taking their respective RMS to 34.2% and 24.1%, while Idea’s saw a marginal 0.1 point rise, on quarter, to 18.9%.


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