Telecom: Dec 2017 marks a new low on wireless-spend-to-GDP ratio - Kotak

Dec 2017 marks a new low on wireless-spend-to-GDP ratio. Consumer-level wireless spends in India formed a new quarterly low in the Dec-2017 quarter both in absolute terms (Rs331 bn) and as % of nominal GDP (0.77%). Consumer-level spends are down nearly 30% versus pre-Jio-launch levels with similar levels of decline in both prepaid and postpaid segments. Incumbents are gaining share, albeit modest, in the LTE market and holding their own on MNP net adds - minor positives in what remains a challenging competitive environment.

Quarterly performance indicators report (PIR), Dec 2017: wireless spends hit a new low

At Rs331 bn absolute and 0.77% of nominal GDP, consumer-level wireless spends in India hit a new low in the Dec 2017 quarter. Peak quarterly consumer spend level of Rs446 bn, we note, was hit in the Jun 2016 quarter. Spends fell 6.3% qoq in the Dec 2017 quarter despite Jio increasing prices in October; the story of the quarter was the incumbents (a) reducing their pricing premium versus Jio and (b) opening up their bundled plans to all customers; these were being offered selectively until the Sep 2017 quarter.

Postpaid revenues declined as much as 8.5% qoq while prepaid revenues were down 7% qoq. We note that the pressure on the post-paid segment is despite Jio not having become aggressive in this segment yet. The massive price-value equation differential between prepaid and postpaid segments is forcing a natural drift down in postpaid pricing. We note that postpaid ARPU of Rs348 for Dec 2017 quarter (down 30% from peak levels of Rs500) is still nearly 5X prepaid ARPU of Rs67 (down 37% from peak levels of Rs106).

LTE subs base expands to 238 mn, 56% of total data subs; Jio's share of LTE subs at 67%

Total wireless data usage increased 20% qoq and 127% yoy to 6.84 bn GB. As much as 81.5% of this was carried on LTE networks while 3G and 2G networks carried 16.7% and 1.8%, respectively. We do note that part of the data being carried on the incumbents' 3G networks is being generated by their LTE subs; this is because of the still-patchy LTE coverage of the incumbents. Data usage per sub stood at 5.5 GB/month (+18% qoq, +95% yoy) overall and 8.5 GB/month for LTE subs (flat qoq).

LTE subs base expanded by 41.4 mn qoq to 238.3 mn subs; with 160.1 mn subs, Jio accounted for 67.2% of these subs. Incumbents' share of LTE volumes for the quarter stood at around 21% with share of incremental LTE volumes at 46%. Essentially, while Jio remains the dominant LTE operator, incumbents are slowly but surely increasing their share in this segment of the market.

MNP end-Feb 2018 update: porting activity picks up as challengers exit

Exit of players like RCOM and Aircel has resulted in increased porting activity in the recent months. On the cumulative net port-ins front, Idea continues to lead with 29.5 mn net port-ins at end-Feb 2018. Bharti and Vodafone are close with around 25 mn net port-ins each while Jio has seen a total of 7.5 mn net port-ins (a little over 4% of its overall subs base). We do note that Jio's port-in pace (0.9 mn/month) since Nov 2017 is higher than what it was prior.

Bottomline: Jio continues to be aggressive in trying to expand its addressable (LTE) market while incumbents continue to (a) do well in the (shrinking) non-LTE market (b) slowly improve their share in the LTE market and (c) hope that Jio's focus shifts from expanding its addressable market to expanding the market. Hope is not a great strategy but sometimes hope is all there is.

Source : Equity Bulls

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