IGI Logo

We expect the 3+1 telecom industry structure to sustain in medium term with the government supporting the sector through policy reforms to help maintain the existing structure. The Telecom reforms of September’2021 that included decisions such as abolition of SUC on new spectrum auctions, modification in the definition of AGR to exclude non-core income, and moratorium on AGR dues payments are steps in right direction to resolve the pain points affecting the sector. Also, with government now holding 33% stake in VIL, it should become easier for the telecom operator to raise additional funds. While the key operating metrics for the sector are improving, it will take few more years for tangible improvement in their ROCE profile.

• Wireless subscriber addition: The overall subscriber addition for Bharti Airtel and Reliance Jio to continue going ahead as per existing trend with growing 4G/5G subscribers driving subscriber addition. VIL is expected to continue to lose subscribers mainly in the 2G segment.

• ARPU Growth: The telecom sector has stabilized to 3+1 structure and there is more pricing discipline in the sector. We expect significant tariff hike (15-20%) post May’2024 General elections, 2G to 4G migration, shift towards higher data packs, increasing postpaid subscription, and expected tariff hikes to support ARPU growth going ahead.

• 5G ramp up and monetization: 2023 would likely see greater focus on ramping up of 5G coverage across India. While Jio is rolling 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.

• Other revenue streams: We expect faster growth in fixed broadband in India led by low penetration, affordable tariffs, falling differential price compared to wireless data. Also, the demand from WFH, learn from home, etc. will drive demand for fixed broadband. Also, Enterprise business has been shaping well for telecom operators led by data centers, cloud, security, CPaaS, etc

• Operating margin to stay robust: We expect EBITDA margin of three telecom operators to improve by 150-200 bps over next 2 years led by positive operating leverage, impact of tariff hikes and some saving on account of lower SUC charges

• Further Telecom reforms: We expect the Government to support the sector through policy reforms to improve the viability of the sector. There have been demands to reduce License fees from current 8% to 5%; and rationalize GST rate from existing 18% rate.

• Overhang of 5G related capex: At the sector level, there is overhang of 5G related capex for telecom service providers and it might adversely impact their free cash flow generation for FY24/FY25. Telecom operators would have to come up with newer ways to monetize 5G related investments.

• Optionalities: TRAI is working on some sort of revenue sharing mechanism in the form of carriage fees to be paid by OTTs to the telecom operators for using their network. This step, if implemented, would help telecom operators in augmenting their revenue streams.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers

SEBI Registration number is INZ000185632