Without any doubt, almost every Analyst has the same view on the Indian Telecommunications sector dominated by 2G Voice that has seen stability and improvement on many fronts, but there is much more divergence on what could happen “later” on voice competition, data, capex and regulations.
Everybody is comfortable with voice-price increase potential and the debate is more on how long this continues for, rather than if voice prices will fall again. The upcoming results are expected to show signs of RPM increase which should provide the much needed relief to earnings (growth) forecasts for all telcos. This was clear by Vodafone India’s result, which showed a very strong 4.5% RPM rise and 3% volume growth. [Vodafone’s ARPUs has risen 15% q-q and 10% y-y [Rs 196], which is the sharpest rise ever and this is a key driver of blended RPM increase Rs 0.57 up 4% QoQ].
Secondly, there are no major concerns on mobile data[3G or 4G] competition at this stage after the recent price cut by Reliance Communications. Usage and penetration are low still. Three Years after the 3G and 4G Spectrum for Data has been auctioned off, the case for Data adoption by Masses is still weak and will potentially get pushed by another 18 months for noticeable /significant volumes.
Voice is Still the Major Cash Ringing Register
It is unlikely that we will see significant voice migration to data given “Indians affinity to talk” and low literacy levels. We don’t disagree entirely, but if voice prices continue to rise, there is a chance that some users may look for VOIP or social
networking alternatives. But this will need higher data (handset) penetration. 3G handset prices from local handset players like Micromax are down to Rs 7,000-8,000 now (around USD100-150). SMS is around 6-9% of revenues for Indian telcos, so not a big risk, but this is a higher margin product (higher EBITDA contribution) and requires low capex too (higher cash contribution), which could come under pressure.
Currently, the wider expectations are voice prices will rise, volumes will rise, data will rise albeit slowly, and CAPEX will under control – this appears a bit too good to be true one would think 🙂