ARPU & Subscribers Growth – Most of the subscriber addition in India is largely coming from the lower ARPU subs, which negates any upward migration of ARPUs of existing subs graduating from 2G to 3G or from 3G to 4G (or even 2G to 4G directly). Also, note that the Top 10-15% sub-base in India has disproportionately high economics relative to the average subscriber as the economics in India falls rather sharply as we reach out to lower layers of consumer subs. Mr. Himanshu Kapania, CEO, Idea, admitted at Idea’s Dec-15 earnings call that there seems to be some resistance to the average 3G sub’s monthly ARPU crossing INR 200 (perhaps because 3G has gone beyond the Top10-15% of the population and is now finding the economics at the next lower strata/layer acutely inferior). Blended ARPUs for Idea and Airtel are now just tracking very low-single digit % growth despite explosive data growth. We will not be surprised if blended ARPU starts to flatten out or even decline Y/Y going forward.
Mobile Data Volume Vs Data Growth To think that data price reduction is not a big concern as volumes will rise in response to price correction so as to keep the consumer wallet unaffected is not right (even for the moment assuming significant price elasticity of data). Servicing rising data usage (volumes) entails higher capex / opex. Substantial data pricing / yield erosion is unhelpful and results in lower returns on investment, even if they help drive a volume surge. In our view, the India Telco industry needs to avoid this fate to be an investable story. The more difficult alternative would be for the players to hold the line on data pricing to the extent possible.
Voice vs Data – With the rising adoption of data, it will start eating into voice within a year. This should start manifesting in rapidly softening voice MOUs/ARPU trends (not yet seen). True, Idea’s and Airtel’s voice ARPUs are already flattening and this just reflects the incremental poorer quality voice subscribers and not cannibalization / substitution of voice by data, in our view. In fact, continued weakening of data pricing might actually precipitate this trade-off. So, if 4G takes off in India accompanied by much lower data pricing, not just could we have a continued capex/opex surge, it might actually accelerate the substitution of voice (as voice tomorrow could be more really data consumption through VoLTE/VoIP).
In conclusion, RCom’s ongoing attempt to consolidate the industry at the lower end by announcing attempts at a three-way merger between the wireless units of itself, of Aircel & Sistema Shyam (SSTL) makes one believe that such moves by spurring consolidation at the lower end moderate the competitive intensity in India telcos and make the industry more disciplined.