Data Upside Yet to be Monetised; Investments Continue

India Ratings and Research (Ind-Ra) has published the March edition of its credit news digest on India's telecom sector. It highlights the trends in the telecom sector with a focus on subscriber additions, subscriber market share, circle wise additions, broadband subscribers, data usage and pricing.

Key highlights of the report include Ind-Ra's views that Reliance Jio Infocomm Limited (RJio; IND AAA/Stable) may continue to disrupt the market till it achieves its critical mass of subscribers. RJio's quest for incremental market share could likely slowdown at around 30% market share (currently subscriber market share at 14.6%; revenue market share at 15%).

Negative Subscriber Growth: Subscriber growth was negative in January 2018, led by closure of services by Reliance Communications Limited and scaling down of services by Aircel Cellular Limited. RJio added 8.3 million new subscribers; while Bharti Airtel Limited, Vodafone India Limited (Vodafone), Idea Cellular Limited and Bharat Sanchar Nigam Limited added 4.3 million subscribers on an aggregate basis.

Circle-wise Market Position: RJio was at third place by subscribers' position in four out of eight top circles in February 2018. Bharti Airtel Limited maintains the leadership position in six out of the top eight circles, whereas Vodafone maintained the number one position in Maharashtra and Gujarat circles in February 2018. Vodafone and Idea Cellular Limited on a combined basis would be at first place in Uttar Pradesh East, Maharashtra, Gujarat and Tamil Nadu circles in February 2018.

Average Revenue Per User Outlook: Ind-Ra believes the unlimited pricing plans will lead to erosion of long-term profitability and accelerated consolidation, the benefits of which may take time to materialise.

Road to 5G: As it stands today, Indian telcos are not in a position to spend large capex required for 5G in 2018. The already high debt levels, pressure on EBITDA, currently low level of 4G penetration and focus on completing consolidation will defer the 5G investment in India beyond 2020. Pricing for the 5G spectrum will remain a deciding factor for telcos to make further investments such as in Massive MIMO (multiple input multiple output) - 5G plug-in technology, cloud radio access network, network virtualisation, to evolve its existing 4G networks to 5G which significantly improves spectrum efficiency.

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