The March quarter results of India’s top mobile service providers were not as bad as some analysts had feared. Even though Reliance Jio Infocomm Ltd continued to provide its services free for the second successive quarter, the impact on incumbents’ profit was far lower compared with the December quarter. One key reason is they tightened their belts to contain the impact of falling tariffs and subscriber churn.
In the December quarter, the first full quarter of Reliance Jio’s free services, operating margins of Airtel and Idea fell 475 basis points on a cumulative basis. In the March quarter, they declined by just 10 basis points. One basis point is one-hundredth of a percentage point.
If anything, the impact should have been larger in the March quarter. After all, as analysts at Kotak Institutional Equities point out, Jio had a higher average subscriber base in the March quarter—its average subscriber base stood at 91 million in March, compared with 44 million in December.
Idea Cellular Ltd did better than Bharti Airtel Ltd when it came to cost-cutting and protecting margins. Still, its shares have lagged behind because of weakness on some other parameters. For instance, Bharti reported a 13.3% sequential increase in its mobile broadband subscriber base; but in Idea’s case, it fell 8.7%. And Idea’s data volume growth of 17% was below Bharti’s 31% growth. Its voice volume growth also fell way short of Bharti’s.
According to an analyst with a domestic institutional brokerage, since Idea has recently achieved pan-India coverage for 4G services, its performance relative to peers should pick up in coming quarters.
The incumbents told analysts in earnings calls that things have stabilized since Jio has started charging for its services. Idea even stated that it estimates revenue to have bottomed out in the March quarter and expects growth in FY18, compared with the annualized revenue run-rate in the second half of FY17. But Jio may well have more tricks up its sleeve—such as a VoLTE (voice over long-term evolution) feature-phone launch which can expand its reach substantially.
Sure, things may not deteriorate as badly in the future, as they did in the December and March quarters; but at the same time, calling out the bottom will be premature.