A report by Crisil projects ARMB to fall further, to 1.15-1.2 paise, by end-fiscal 2019, because of the data pricing war led by R-Jio. In fact, the Mukesh Ambani-led company has been a net gainer following a cut in interconnect usage charges (IUC). The gross revenue of the top three incumbents—Bharti Airtel, Idea Cellular and Vodafone India—plunged 14-16% as they focus on retaining subscriber market share.
Ideally, the reduction in IUC by the telecom regulator should have lowered access charges payout. But the impact was just the opposite as free calling plans by telecom operators sharply increased the minutes of use, increasing the IUC payout.
The report estimates that consolidated margin of the top-three incumbents is expected to shrink 250-300 basis points on-year because of increase in network operation cost and deterioration in average revenue per user (ARPU) as competition is no longer limited to prepaid, but has entered the postpaid space as well. Between FY16 and FY19, Crisil estimates, the operating profit of the top-three incumbents is likely to halve following a drop of 1,000bps in operating margins.
The availability of cheap 4G-enabled devices coupled with all-time low data tariffs is driving data traffic. In FY18 alone, overall data traffic grew four-fold. Telecom companies are increasingly making content tie-ups with over-the-top players to drive data usage.
To retain existing subscribers and expand market share, telecom companies will need to improve their services. The bulk of the capital expenditure will be in mobile services segment, including the roll-out and strengthening of 4G services.
