Robust subscriber additions continue for incumbent telcos in May

Could push volume growth to 5-7% levels in the coming quarters

Even as there are concerns about the profitability of the telecom sector once Reliance Jio launches its 4G services next year, the sector’s near-term outlook looks robust. May has seen the GSM base increase by one per cent to 733.1 million, higher than April's 0.7 per cent growth in subscribers. The large incumbents are the beneficiaries of new subscriber additions and telecom analysts believe these new subscribers will aid volume (minutes of usage on the network) growth of companies in the coming quarters.

In May, Bharti Airtel added 1.65 million subscribers, Idea 1.16 million and Vodafone 0.98 million. In April, Bharti had added 1.19 million, while Idea had added 0.77 million and Vodafone 0.73 million. Uninor added 1.3 million in May and 0.97 million in April.

In a note, Sandip Agarwal and Omkar Hadkar of Edelweiss Securities have said  subscriber additions have been robust in the past five quarters with Bharti, Idea and Vodafone adding 9.8 million, 9.1 million and 7.9 million, respectively, and Uninor and Aircel adding 5.2 million and 5.1 million, respectively.

Unlike the past, when existing consumers in the metros were taking multiple connections to avail of free minutes, the current pattern shows the new users are coming from category B and C circles. The growth in category B and C circles is nearly double that in the metros. For instance, Bharti’s 0.8 per cent increase in subscribers in May was driven by new users in Uttar Pradesh East, Bihar, Karnataka, Rajasthan and Tamil Nadu circles. Idea’s subscriber growth of 0.85 per cent in May was led by Madhya Pradesh, UP East, Bihar and Kerala circles.

The steady growth in subscriber additions over the past five quarters could drive quarter-on-quarter volume growth to five to seven per cent in the coming quarters. With discounts and free minutes going down, revenue per minute (RPM), a key measure of profitability, would also improve. Although the base price has not been raised, RPMs are going up.

While the launch of Reliance Jio is an overhang for the sector, analysts believe the current outlook remains healthy. Since Reliance’s strategy is not known and the availability of 4G handsets might be an issue, some telecom analysts are going with the current projections for existing players and not downgrading earnings.