Data Consumption, ‘Soft Price Hikes’ to Boost ARPU Recovery, Telecom Industry Growth: Report
Rising data usage and ‘soft’ price hikes are expected to boost average revenue per user (ARPU) recovery, while subscribers’ upgrade to smartphones and broadband internet access will be growth catalysts for the sector, according to a report.
Consolidation is expected to continue in favor of Reliance Jio and Bharti, as Vodafone idea “Continues to bleed market share,” JP Morgan said in a note Wednesday.
“The low marginal costs of providing data imply a strong operational leverage effect of traffic growth and continued polarization in favor of the leaders (Reliance Jio and Bharti),” he said.
This, in turn, means strong growth in EBITDA (earnings before amortization and depreciation of interest tax) for Bharti and Reliance Jio and continued marginalization of VIL, he added.
India’s telecoms operators have the lowest ROIC (return on invested capital) among their Asian counterparts operating in similar market structures, suggesting that genuine market repair is still needed, he said and underlined the expected recovery of ARPU, driven by consumption and slight price increases.
Subscribers’ upgrades to smartphones and high-speed internet access given low penetration (below 50%) are expected to be the main drivers of industry growth, the report adds.
“Bharti is expected to gain on the premium side of the market, resulting in higher ARPU, and Jio on the scale side, with higher share gains in terms of revenue and subscribers,” he noted.
India’s telecommunications industry has seen significant consolidation over the past three years, with the top three private operators now accounting for over 90 percent of subscribers, revenue and traffic.
“This resulted in the destruction of the industry’s economy and performance ratios. However, consolidation is now expected to result in a secular recovery in ARPUs and return ratios for the sector, ”he said.
The market structure is likely to polarize further due to “significant regulatory sanctions and weak balance sheet” from Vodafone Idea, which may further benefit Reliance Jio and Airtel.
“Our analysis of the industry structure and performance ratios shows a strong correlation, especially as a market consolidates with 2-3 players controlling a spectrum, subscribers and significant revenues,” he said. -he declares.