The extension of promotions by Jio were a negative for Airtel, Idea Cellular and Vodafone Lobby as incumbents would have expected some of their customers using free Jio services to start paying them once the free services of Jio concluded; however with free services from Jio continuing for one more quarter, the expected recovery is delayed. Jio’s free service put pressure on all existing operators and is driving industry consolidation. Smaller operators with low revenue market share, low data investments, low margins and high leverage were adversely hit disproportionately.
TRAI’s 4QFY17 industry revenue report emphatically shows how free services can impact an industry. Industry’s quarterly adjusted gross revenue base for 4QFY17 ( Rs 309 bn) was nearly 17% lower than the last pre-Jio quarter, i.e from Sep 2016’s Rs 372 bn levels.
Even as Idea saw the highest 11% decline in gross revenues in 4QFY17 versus 2QFY17 among the incumbents, its 12.5% AGR decline was lower than the 17% decline levels for Airtel and Vodafone. We believe this reflects lower level of aggression from Idea in response to Jio. Aggressive unlimited voice offers in response to Jio perhaps resulted in higher interconnect payouts for Airtel and Vodafone. Idea’s aggression was limited to circles where they had a strong LTE offering – this reflected in similar AGR-decline-higher-than-GR trend in all of Idea’s leadership circles – AP, Gujarat, Kerala, UP (West), Punjab, MP, Haryana and Maharashtra.
Jio impact was felt across the industry, the middle-of-the-pack private operators, i.e. RCOM, Aircel and TTSL suffered the most. RCOM’s cumulative 2Q-4QFY17 revenue decline was 34% at the AGR level while the same was 26% for TTSL and 29% for Aircel.
BSNL shows up as an outperformer with only a 2.5% lower AGR in 4QFY17 as compared to 2QFY17. The company in fact grew its reported AGR in 11 out of 22 circles during this timeframe.