Telecom sector revenue may grow 4.5-5% on quarter in FY3Q: Analysts

Telecom sector revenue is estimated to grow at around 4.5-5% sequentially in the December quarter, driven by the residual impact of segmented tariff hikes taken in July, higher smartphone sales in the festive season and a rapidly easing pandemic situation, say analysts.

Going forward, they expect the Reliance Jio, Bharti Airtel and Vodafone Idea to go for another round of tariff hikes soon to drive further revenue growth, as it’s getting costlier for all players to acquire new 4G customers, amid continuing competition. The recent relief package, which signals that the government is supportive of a three-player telecom market structure, further underlines the likelihood of another price hike soon, they added.

“Industry revenue increased 4.5% q-q in 2QFY22, (and) we expect the growth momentum to continue in 3QFY22 as well, on (continuing) effect of segmented price hikes taken and increase in smartphone sales during the festive season,” BNP Paribas said in a note.

It pegs telecom industry revenue for the quarter ended September at Rs 43,333 crore.

BNP expects big operators to “prioritise tariff hikes” over market share gains as a strategy to accelerate revenue growth, and believes both “Bharti Airtel and Reliance Jio are well positioned to benefit from the next round of tariff hikes as well as market share gains in the medium term”.

Deutsche Bank said “Jio is finding it harder to attract marginal users,” and trends suggest it’s getting more expensive for the telecom market leader to chase incremental subscribers. “The harder that gets, the more likely it (read: Jio) will want to lift industry pricing,” the German bank said.

Regular prepaid plans (read: 4G prepaid), it said, are due for a lift, but “either Jio or Bharti need to make the first move”.

Deutsche Bank added that the worst appears over, for industry, going by recent sequential average revenue per user (ARPU) growth trends, and if anything, the sector “needs a price rise, and now that Diwali is over, it may be an appropriate time”.

Airtel, Jio and Vi reported on-quarter ARPU growth in the July-September period.

Analysts say price hikes in the prepaid smartphone users segment – which garners 50-80% of telco revenues — are particularly crucial for loss-making Vi, to further boost ARPU growth, cash generation and arrest revenue market share erosion.

Analysts and top industry honchos have already downplayed the likely market impact of the recently launched JioPhone Next — co-developed by Reliance Industries (RIL) and Google – saying the new 4G device is unlikely to drive mass migration from feature phones to smartphones due to its current pricing, and also since similar device financing offers are being offered by Airtel and Vi across a wider range of 4G smartphones, including refurbished handsets.

The JioPhone Next, which was launched during Diwali, is available for an upfront payment of Rs 2,500 (including a Rs 501 processing fee) with the balance payable in monthly instalments over 18 or 24 months. The device price, if bought without instalments, is Rs 6,499.

According to Deutsche Bank, Bharti has been a more powerful opponent for Jio in recent quarters, which suggests that market share will be more static in the days ahead. Jio, it said, is likely to find a lot of the demand for JioPhone Next to come from existing (low-paying) JioPhone users, in which case, “the cost-benefit of the seemingly expensive launch may disappoint it”.

Airtel outperformed Jio and Vi on both revenue growth and customer addition fronts in the September quarter. It reported 6.2% sequential revenue growth, which was higher than Jio’s 4.1% and Vi’s 2.8%. It also added 2.7 million subscribers (net, including home broadband users) in the fiscal second quarter compared to Jio’s over 11 million and Vi’s 2.4 million customer losses in the same period.