Jio effect: 5 things that show telecom sector will never be the same again

With Reliance Jio coming out with new deal for users, pain will aggravate and extend to June quarter

If the December quarter was bad for the telecom sector, the March quarter could be worse. The full impact of Reliance Jio's (RJio) service will be felt from the March quarter as people had still been trying out the service and the size had been growing to peak levels towards the end of FY16. On every parameter -- realisations, volumes, revenues, margins or debt -- companies are likely to report numbers that are at multi-year lows/peaks. 

Here are five things from the March quarter that stand out:

ARPU is in, all other metrics are out
 

The launch of free offers and attractive packages has made a number of operational metrics like data revenue per megabyte and average revenue per minute redundant. Harsh Jagnani of ICRA says that given the bundled offers by all telecom operators, the 'primary metric which will be tracked' going ahead will be average revenue per subscriber or ARPU. RJio's bundled offers, allowing users unlimited calls and data usage, is the prime reason for this sea change. 

Revenues take a dive as ARPUs hit 5-year lows

CRISIL Research estimates that March quarter revenues for the four listed players will fall by 10 per cent year-on-year as compared to the 5 per cent year-on-year fall in the December quarter. The reason for the sharp decline is not only fall in tariffs, both for data and voice, but also the dip in volumes given a large amount of data usage shifted to RJio. Industry ARPUs have been estimated to fall to five-year lows of around Rs 150. With RJio coming out with a new deal for its users, the pain will aggravate and extend to the June quarter.

Rs 300 would be the new ARPU base for top customers

With RJio launching its Rs 303 plan and competitors such as Bharti Airtel responding with its Rs 345 plan, analysts expect users to downgrade from premium plans to those between Rs 300 to Rs 350. In fact, given Bharti’s new unlimited plans, CLSA expects its ARPUs for FY18 on the India mobile business to fall by 15 per cent. About 11 per cent of the user base has ARPU of over Rs 350. From those, about one per cent have ARPUs of over Rs 800, a larger portion of which will probably shift to the sub-Rs 350 plans.

Share of data revenues in FY17 has doubled in 3 years

All over the world, there is a shift to data as a person can make both audio and video calls using data networks and access multiple applications through data networks. The trend is no different in India. From 12.5 per cent of revenue in FY14, data revenue has more than doubled to 26 per cent in FY17 and is expected to again double to 50 per cent by FY19, believes CRISIL Research’s Ajay Srinivasan. Voice has become a commodity and most growth is coming from higher data usage, he adds.

More leverage, more debt

Debt levels could hit the Rs 4.5 lakh crore mark at the end of March quarter, possibly the highest for the sector so far, believes Jagnani of ICRA. The same stood at Rs 4.1 lakh crore a year ago. Most of it is, however, due to the Rs 65,000 crore debt taken due to the spectrum auctions in October, 2016. Companies have had to depend on external funding, equity infusion (in the case of Vodafone) as well as asset sales (such as the one undertaken by Airtel), which have helped keep the debt in check. Net debt to Ebitda is at 5.6 times.