Telecom Q3 preview: Data subscriber additions, ARPU spike may dial in cheer

But tariff hikes will not translate instantly into ARPU growth

The October-December quarter is likely to yield healthy operational performance for telecom operators with data adoption, subscriber addition, and average revenue per user (ARPU) showing positive growth. 

Incumbent telcos are expected to report revenue growth, following higher data usage and data subscriber addition, while benefiting from interconnect usage charge (IUC) introduced by Reliance Jio. However, the impact of internet shutdowns across the country and subscriber response to recent tariff hikes will be watched closely.

“Incumbent telecom operators are expected to see sequential improvement in wireless revenue, driven by healthy data subscriber addition, resumption of services in Jammu & Kashmir (J&K), and  some voice traffic shift from Jio due to the introduction of IUC top-up vouchers,“ noted Naval Seth, research analyst, Emkay Global 

in a report. The analyst, however, notes that there will  be little impact of the tariff hike in the third quarter as subscribers would have recharged ahead of the hikes. 

Estimate ARPU for Bharti Airtel and Vodafone Idea is likely to improve by 6 per cent and 7 per cent quarter-on-quarter (QoQ), respectively. Jio’s growth might be impacted slightly due to the new charges, noted Seth.

“We expect Vodafone Idea to report subscriber base decline of 5 million on integration, led by network flux, while addition for Airtel is estimated around 3 million, as it may benefit from new entrant (Jio) charging for voice and J&K situation normalising. We see strong data subscriber addition of 13 million and 5 million for Airtel and Vodafone Idea, respectively,” wrote Sanjesh Jain, research analyst, ICICI Securities.  

 

Airtel’s India revenue is expected to grow 3.0 per cent QoQ (7.2 per cent year-on-year) to Rs 159 billion, mostly led by the mobile segment, and earnings before interest, taxes, depreciation, and amortisation (Ebitda) will likely decline 2.1 per cent QoQ to Rs 62 billion on normalisation of selling, general, and administrative cost, which had one-off benefit in the second quarter of 2019-20.  

For Vodafone Idea, revenue is likely to rise 1.5 per cent QoQ to Rs 110 billion, on better ARPU. However, the operator’s network issues during the past quarter are likely to result in significant churn.

“For Jio, we expect ARPU to increase to around Rs 123 (versus Rs 120 in F2Q20), leading to 9 per cent QoQ revenue growth. We expect Ebitda margin to improve QoQ, benefiting from revenue growth and lower interconnect costs, partly offset by increase in network costs,” noted Parag Gupta, equity analyst, Morgan Stanley, in a report. 

With IUC charges across telcos now, the incumbents are not likely to see significant IUC benefits this quarter, but tariff hikes will drive numbers. However, the full impact of tariff hikes will be spread over two quarters as a bulk of subscribers are now opting for three-month recharges. 

Vodafone Idea is expected to report the closing phase of subscriber churn to retain users that spent a minimum amount on their subscriber identity module. Analysts will look for commentary on incremental adjusted gross revenue provisions, ARPU growth and strategy to further maintain it as well as subscriber movement as higher tariffs require further consolidation in the market.