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Telecom Q4 Preview: Flat quarter expected due to muted revenue, high 5G rollout costs

Due to sluggish revenue growth and rising expenses associated with the implementation of 5G, it is anticipated that the Indian telecom industry will report a stagnant fourth-quarter performance in 2023.

Jio is expected to lead in subscriber growth with +5.5 million quarter-on-quarter (QoQ) additions and gain market share from Vodafone-Idea, also known as Vi, due to its competitive pricing plans, according to Emkay Global. The brokerage estimates that Jio’s quarterly revenue and EBITDA growth will be 1.7% and 2.1%, respectively.

Due to an improved composition and a reduced number of days in the quarter, Bharti Airtel expects its average revenue per user (ARPU) to rise by 1.5 percent quarter over quarter to Rs 196.

“On a consolidated basis, we expect revenue to increase 0.5 percent QoQ. Margins would be impacted by the rollout of 5G, which is likely to increase network expense and decline in the Airtel Africa margin,” says Emkay Global.

According to Yes Institutional Equities, overall wireless subscriber addition for Airtel and Reliance Jio would remain modest in the near future, with the increase in 4G and 5G subscribers propelling subscriber addition. It is anticipated that VIL will continue to lose subscribers, primarily in the 2G segment, while adding a few subscribers in the 4G segment.

Migration from 2G to 4G is anticipated to continue, but momentum could be slowed this quarter due to inflationary conditions and the absence of a tariff increase.

“In Q4FY23, we expect the conversion of 2G subscribers (to 4G) to continue for Bharti Airtel and Vi, though the benefit is likely to be mitigated by: i) a lower number of days in Q4 vs. Q3; ii) lack of major tariff hike benefit, and iii) loss of subscribers for Vi,” according to Emkay Global.

While Bharti increased its entry-level tariffs across India on a staggered basis between mid-November and mid-March, IIFL Securities anticipates a modest revenue increase in the fourth quarter.

The brokerage anticipates that the tariff increase will be postponed until 2QFY25 due to “persistent consumption spending weakness, elevated competitive intensity in light of Jio’s recent pricing interventions in the mobile postpaid and FTTH markets, and potential market-share gain opportunities for JIO and Bharti on Vi’s delay in fund-raising.” With parliamentary elections in India scheduled for 1H2024, we do not anticipate tariff increases until 2QFY25.”

The last two industry-wide tariff increases occurred in December 2019 and November 2021, when telecom operators increased tariffs by approximately 25 percent in each round, according to Yes Institutional Equities. The next tariff increase is anticipated to occur in the second half of 2023, with a 1015 percent increase in the prepaid segment.

On the 5G deployment front, all parties are accelerating their efforts, which will result in increased expenses.

IIFL Securities anticipates that Airtel’s EBITDA will remain unchanged due to a rise in network opex as a result of the accelerated deployment of 5G. It is anticipated that the quarterly growth in mobile revenue will be 0.6% in the fourth quarter.

“While Jio is rolling out 5G SA and targeting to cover all Indian towns by Dec 2023; Bharti Airtel is implementing 5G NSA and aims to cover all Indian towns and cities by March’2024. 5G implementation would lead to a higher capex outlay for them in the near term,” according to Yes Institutional Equities. It adds that VIL has yet to disclose a timeline for 5G deployment in India.

Overall, it believes that Bharti Airtel has a solid foundation, with industry-leading ARPU, a growing subscriber base, and an outstanding track record of business execution, and is expected to deliver robust performance in the future. Jio is anticipated to continue its subscriber and average revenue per user (ARPU) growth trends, although the increase in subscribers may moderate in the future.

“The financial condition of VIL remains precarious as it continues to lose subscribers and has the lowest ARPU in the industry and we expect it to underperform. It urgently needs massive capital infusion to augment its capex to catch up with peers,” it adds.

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