India’s Telecom Market and its Janus moment
In ancient Roman mythology, Janus was depicted as the God of “transitions and dualities” and symbolic of new beginnings. Janus was typically depicted as being two-faced, not in the colloquial connotation of being deceitful, but rather more emblematic of the many moments where we find ourselves caught in a moment of pause, of hesitation, of transition from one moment or phase to another. Janus’ two faces were believed to face both the past and the future. The never-dull Indian telecom market seems to find itself poised at such a Janus-like moment. Before readers begin to wonder whether we’ve gone off the deep end chasing esoteric references from ancient times, we will attempt to make a case.
The Indian telecom industry has been tumultuous, colorful or just plain exciting depending on one’s perspective. The start of 2023 can be described as a new beginning, with industry prospects seemingly on an upturn. However, this is a relative statement depending on which operator one refers to. Jio and Airtel would represent the forward facing group, while Vi and BSNL are the ones still stuck in the past, as it were.
The market leader, Reliance Jio, fresh from a successful auction for 5G spectrum, has lost no time in deploying 5G networks around the country. Jio has a stated goal of 5G nationwide by mid-2023. On the one hand, they are the clear market leader in subscribers, with its all-4G network boasting 435 million subscribers as of December 2022. The rapid deployment of 5G, with services planned for both consumer and enterprise segments, should see Jio further consolidate their leadership position, with Jio planning new product launches for FWA, private 5G and more.
Jio reported earnings of INR 229.98 billion ($2.78 billion) which is nearly a 19% increase YoY. Corresponding profit stood at INR 46.38 billion ($561 million) up from INR 36.15 billion ($437 million) in the same period of the last year. Jio’s rise in earnings is attributable to the rise in both subscribers and average data consumed per user. Jio reported a marginal increase in ARPU of INR 178.20 up from INR 177.20 in the previous quarter.
Rapid 5G deployment is crucial to the Jio growth story as their 4G networks have peaked, both in terms of coverage but more crucially in terms of congestion in the network which has resulted in a degraded customer experience. The other issue for Jio has been stagnant ARPU levels, as they have not made significant headway into the premium subscriber tiers. 5G services, presumably priced at a premium for consumers, will be crucial for topline revenue growth. Jio will also need to focus on its solutions for the enterprise segment, an area that it is a relative laggard in.
Bharti Airtel has come through its most turbulent phase, survived, and is now thriving. 5G networks are getting deployed around the country, though not at the breakneck speed of Jio. Airtel has done very well to consolidate their hold on the premium segment in India, with their focus on securing the “first SIM slot”. Beyond this, Airtel has also reported a slight increase in its subscriber base that stands at 332 million as of December 2022. This is up from 327 million subscribers in the previous quarter.
For the quarter ending December 2022, Airtel reports earnings of INR 249.62 billion ($3.02 billion) which is a 19.4% increase YoY. The corresponding profit stood at INR 15.88 billion ($192.24 million), up from INR 8.29 billion ($100.33 million) in the same period of last year. The increased performance is attributed to higher 4G subscriber adds in the quarter. The improved performance is also reflected in an uptick in ARPU, with Airtel reporting a nominal increase to INR 193, up from INR 190 in the previous quarter. Airtel’s improved revenue outlook has a lot to do with a key decision to increase the minimum tariff for prepaid subscribers, from INR 99 to INR 155.
Airtel is focused on its 5G expansion and has significant spectrum assets in mid-band and mmWave. However, they are taking a much more targeted approach relative to Jio in terms of launch markets. CAPEX spend is growing, with Airtel’s CAPEX in December 2022 quarter at INR 81.058 billion ($982.2 million), up from INR 56.97 billion ($690.33 million) in September 2022 quarter. Primary focus areas for CAPEX include RAN expansion based on new 5G sites (macro as well as small cells) and also in the transport layer.
Vodafone IDEA (Vi)
Vodafone Idea (or Vi) continues to be in a precarious shape. The operator, even post the merger of Vodafone India and IDEA Cellular, has suffered from a number of setbacks over the last few years and these are well documented. Despite the GOI’s reform package and provisions for deferred payments of its outstanding license fees and revenue share dues, Vi continues to struggle, with subscriber losses continuing to depress its market share in subscriber and revenue terms. Vi’s losses for FY22 is more than the combined profits of the big two telcos Jio and Airtel in the same period, and similar results are expected in FY23 too. Recently, the Government of India (GoI) finalized its decision to convert outstanding interest penalties owed into equity, thereby making the GoI the largest shareholder outside of the promoters. However, this is only at best a temporary reprieve for the group. Vi’s subscriber base as of December 2022 stands at 228.6 million, a far cry from its brief post-merger status as market leader.
Vi’s operations continue to be hobbled by its existential crisis. The biggest challenge for Vi is to fund much needed CAPEX for its 5G launch as well as necessary upgradation in its 4G network. CAPEX for the quarter ended December 2022 was a negligible INR 750 crores (US$90m). While the GOI has finally pulled the trigger on its debt to equity conversion, Vi will not move forward without an infusion of funds from its promoters. Moreover, it urgently needs to refinance agreements with lenders and vendors over outstanding dues. We expect Vi’s struggles to continue through much of 2023 as it continually skirts the proverbial cliff’s edge. To be fair, there are pockets of strength within Vi, especially on the enterprise side of the house, where the operator has solid offerings for IOT and private networks, as well as an established client base.
The good news for Vi, or perhaps more of a silver lining, is that there is a telco that is considerably worse off in India. Namely, BSNL. The state-owned operator has been virtually written off for the last few years, saddled with debt, poor network quality, lack of 4G and 5G spectrum, and a declining subscriber base. BSNL has also been, rather unfairly, burdened by a need to comply with the “Make in India” policy of the GOI which mandates purchase of network gear from domestic players only.
Despite these challenges, BSNL may be about to rise up phoenix-like from the ashes. The GOI has stated its intention to revive BSNL at all costs. Indeed, the GoI announced in August of 2022 a revival package of INR 1.64 trillion with the stated goals of launching 4G services in this year and to roll out 5G by 2024. As a step in this direction, BSNL has shortlisted a consortium led by TCS and C-DOT in the rolling out of 4G network which will then be upgraded to include 5G. BSNL’s board announced its recommendations on 100,000 4G network sites, to be deployed by TCS led consortium of which state-run ITI Limited is a participant, and a PO be issued to the consortium. As part of the terms, TCS will supply 4G equipment for these 100,000 4G network sites worth INR 24,556 crores which also includes network gear (to the tune of INR 13,000 crores) and 3rd party items and inclusive of a 10-year annual maintenance contract. BSNL in 2022 tested the indigenous telecom stack setup for 4G for 10 million simultaneous phone calls. There is clearly a long and arduous road ahead for BSNL’s revival but we are closer to this becoming reality in 2023.
A few years ago, circa 2018, we were still projecting a 3+1 market structure for India, with BSNL being the odd one out. However, subsequent years have seen Vi fall away precariously, and the market structure was looking a lot more like a duopoly between Jio and Airtel. If one wanted to be optimistic or charitable, we could have described the prevailing structure as 2+1+1. However, recent events like the GOI’s reform package and announced intent on reviving BSNL seem to show the GOI is signaling its 3+1 approach to the telecom market (i.e.3 private players and 1 state-owned player) which would ultimately be beneficial to the consumers and investors alike. We believe that the prospects for such a market structure are inching into the optimistic zone.
2023 will be the year that India can finally reach escape velocity and move past its current Janus-like state of inertia. There remains a lot of work to be done, with a few areas including:
Spectrum roadmap must be made clear and equitable by the DOT, balancing new spectrum for 5G expansion as well as allocation of spectrum for vital backhaul and satellite services.
Investments in the transport networks are crucial to cater to the surge in data traffic that will come with 5G and new services.
Digital infrastructure needs clear and enforceable policies to ensure speedy deployment of networks and digital assets. Rights of way is one example that, despite recent progress, needs to be streamlined across the country.
Fast movement on enabling private networks and direct ownership of spectrum. Mandala Insights projects this to be a significant market, reaching $240 million in total spend by 2027.
This article first appeared on the "Beyond the Next Billion" blog on www.mandalainsights.com. For more information on private networks in India, refer to our recent report "Private Networks in India: Market Landscape and Forecast 2022-2027".