Spectrum Auction, 5G Roll-Out Might Derail Recovery In Telecom Sector

Although there has been some stabilization in revenues of mobile services in the fourth quarter of FY19, the credit profiles of telecom players will remain under pressure in the medium term. Due to the high competitive intensity, elevated debt levels and continued reliance on capital infusion for debt servicing and CAPEX.

Nevertheless, R-Jio's data tariffs remain at a discount of 25-30 percent to Bharti/Voda-Idea; this has enabled the former to continue to garner market share aggressively, signaling that competitive pressure has not yet subsided.

However, the report also pointed out that the likely recovery in profitability, may not be sufficient to address credit concerns such as high leverage, elevated CAPEX, sustained negative free cash flow and the imminent need for asset monetization.

Bharti And Voda-Idea lose Subscribers

According to a report between March 2019 and September 2019, Bharti and Voda-Idea lost 50 million and 88 million subscribers, respectively. Due to the implementation of minimum recharge plans at end-3QFY19.

It said for Bharti and Voda-Idea, the proportion of data subscribers in total subscribers increased rapidly to 41-44 percent in 4QFY19 from 28-33 percent in 1QFY19.

The share of broadband (3G+4G) also increased meaningfully to 31-33 percent in 4QFY19 from 17-22 percent in 1QFY19. Bharti has been a reporting steady growth in data traffic, and with average monthly usage of 11 GB/user, overtook R-Jio in data consumption.

Spectrum Auction And 5G Roll-Out

Furthermore, the report highlighted that any incremental spending for the acquisition of additional spectrum along with investments in 5G technology may further stretch the balance sheets of telcos, and derail the recovery process. And the auction may not garner adequate interest as telcos are still optimizing their existing spectrum; moreover, spectrum pricing continues to be a matter of concern, and 5G technology has still not been finalized.