After two successive months of declining subscriber numbers, India’s leading wireless operators reported an increase in October. Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd reported a total increase of 1.21 million subscribers. In August and September, this number had fallen by 5.11 million and 2.18 million, respectively.
“The subscriber data suggests that the worst in terms of the de-activation exercise of inactive SIMs (subscriber identity modules) may now be behind us,” analysts at Barclays Research pointed out in a recent note. The industry’s growth in the GSM (global system for mobile communications) space was merely 240,000, showing that the top three firms were able to corner a large share of net additions. Barclays’ analysts also note that Uninor continued its downward momentum with the loss of a further 1.1 million subscribers in October, which suggests that with the date for licence cancellations coming closer, operators facing cancellations are under pressure. In the past four months, Uninor has lost 4.54 million subscribers.
While the return to growth is welcome, investors must note that expansion can now be only lower because of the high base effect. But, there is a positive side to this. Relatively low growth also shows some restraint in subscriber-acquisition strategies. Telecom companies had begun lowering dealer commissions and subscriber-acquisition costs since August, which will lead to better profitability. And, thanks to the poor response to the recent radio spectrum auction, competitive intensity is expected to reduce further and tariffs are expected to rise. So far, some operators have hiked tariffs in some areas. This trend is likely to sustain and net realizations are expected to rise owing to a drop in discount vouchers. Operators have started testing the market for tariff hikes by reducing discounts in the past few weeks, according to a recent report by Credit Suisse.
This, coupled with the increase in subscribers, should lead to decent financial results in the December quarter, which is anyway a traditionally strong quarter. But, much of this seems to be priced in already because telecom stocks have risen 14-15% since end-October.