Telecom firms' revenue fall: 10 things to know how Reliance Jio hit everyone
And you thought Reliance Jio is about no pain, all gain! In what seems to be inevitable, the annual revenue of telecom companies fell to Rs 1.88 lakh crore (from Rs1.93 trillion the previous year) — the first time in seven years.
And the reason for that is Reliance Jio's aggressive pricing, and the resultant price war in the sector.
According to Livemint, broking firm CLSA in a report released on April 7 said revenues are expected to decline more to Rs 1.84 lakh crore in 2017-18.
The same report says things could start looking up the following year, but the projected revenues of Rs 1.87 lakh crore in 2018-19 will still be lower than the Rs 1.93 lakh crore grossed in 2015-16.
Here's a look at what that means to Reliance Jio, other telecom companies and the entire sector.
1) In the December quarter, revenues of nine telecom operator declined by 1.1 per cent, according to CARE Ratings. The operating margin for the industry stood at 28.43 per cent. Profitability in the quarter stood at its lowest in last six quarters, according to CARE.
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| The annual revenue of telecom companies declined to Rs 1.88 lakh crore (from Rs1.93 trillion the previous year) — the first time in seven years. |
2) Even though the Telecom Regulatory Authority of India (TRAI) has asked Jio to discontinue its Summer Offer — additional three months of free data and voice service — existing customers will continue to enjoy the benefit.
3) According to CLSA, this along with new offers from incumbents will continue to dilute the average revenue per user (ARPUs) at the upper end of subscribers.
CARE data show ARPU of Bharti Airtel came down 10.4 per cent to Rs 172 even as Idea's declined by 10.8 per cent to Rs 157 (December quarter).
4) Telecom companies have started focusing more on profits and ARPUs as data has suddenly gained more grip over voice and text services.
5) CARE is expecting some de-growth as the dual SIM users who signed up for Jio's free offer may surrender one of the connections.
However, if CRISIL is to be believed, Jio's entry will increase the data traffic threefold.
6) The stiff competition triggered by Reliance Jio will weigh on the financials of telecom companies in the near future.
7) Jio's has also triggered industry consolidation —mergers of Vodafone-Idea and Airtel-Telenor India. With that, only 3-4 major players will be left in the sector — which also means possible job cuts.
8) On the other hand, in the long-term, the consolidation in telecom will lead to a better pricing discipline. Return on capital employed is likely to improve for the industry by around 300-basis points in next two years, the same report stated.
9) Besides, TRAI has also said that the lower tariffs and promotion offers are lowering the government revenue and hitting financials of the sector.
10) The regulatory authority is worried that this in turn would impact other telecom firms' capability to meet "contractual commitments, including payment of instalments for spectrum purchased, and repayment of loans".