Recovery to continue for India’s telecom sector in FY22

Source: LiveMint.com, Mar 25, 2021

NEW DELHI: India’s telecom sector will continue on the path of recovery in the next financial year starting 1 April, amid consolidation that will lead operators to focus on digital transformation of their businesses.

According to India Ratings and Research, the second round of consolidation in the industry, which has kicked in, will drive telecom companies from being providers of traditional voice-only services to complete digital solutions for households that would enable customer retention.

Also, conducive regulatory environment will improve the sector’s performance. The credit rating agency has maintained a stable outlook for the telecom sector in FY22.

“Providing one or more of the services such as broadband services, cable TV services (direct -to-home), enterprise solutions (B2B), e-payment wallets/platforms, music applications and over-the-top (OTT) transmission platform, in a bundled form along with the traditional wireless mobile services has now become the need of the hour, to ensure customer stickiness and widen the market footprint,” it said.

The surge in data usage in the past one year and rising proportion of high-paying customers indicates that the sector is moving towards higher average revenue per user (Arpu), despite no tariff hikes. Competition among telcos has also intensified, as is evident from narrowing tariff differentials.

The development in the coming quarters will be key to the sector as it will determine whether “India’s mobility market will remain a 3+1 player market or will transition to a 2.5+1 player market, and how telcos will respond to the next phase of consolidation in the industry”, India Ratings said.

It should be noted that the entry of Mukesh Ambani-led Reliance Jio Infocomm Ltd in September 2016 in the country’s telecom space and its almost-free voice and data services caused massive disruption, forcing other players to drastically cut prices. Since then, while most firms exited their businesses, only Bharti Airtel Ltd and Vodafone Idea Ltd survived the brutal tariff war but continue to deal with high levels of debt.

In the December quarter, revenues of telecom sector rebounded to levels seen in the years prior to Reliance Jio’s launch. Net mobile revenues rose 4.5% sequentially to $25 billion in October-December, according to data issued by the Telecom Regulatory Authority of India (Trai). The last time the sector earned $25 billion was in the June quarter of calendar year 2016.

The average revenue per user (Arpu), a key performance metric, of Bharti Airtel plunged to Rs100 per month in Q2FY19, from Rs196 in the first quarter of fiscal 2017. Prior to its merger with Vodafone, Idea’s Arpu stood at Rs181, which fell to a record low of ₹88, for the combined entity in the September quarter of 2019. Jio had an Arpu of ₹131.7 in the September quarter of 2019.

Telecom sector headed for second round of consolidation, says report

Source: Business Standard, Mar 23, 2021

Mumbai: Providing services like broadband connectivity, cable TV, enterprise solutions, and payment wallets is the need of the hour for telcos, and a second wave of consolidation is upon the industry, a rating agency said on Tuesday.

India Ratings and Research said the sector, which was battered following the aggressive entry of Reliance Jio, will continue showing signs of recovery amid conducive regulatory environment and maintained a “stable” outlook for the industry in FY22.

The second round of consolidation (Consolidation 2.0) is kicking-in in the industry, which will bring a transformation in the business models of telecom companies, leading to the evolution of incumbents from the providers of traditional voice-only services to complete digital solutions for households, it said.

Along with wireless mobility, telcos will have to provide services such as broadband connectivity, cable TV services (direct -to-home), enterprise solutions, e-payment wallets/platforms, music applications and over-the-top transmission platform.

Such bundling of services along with the traditional wireless mobile services has become the “need of the hour” to ensure customer stickiness and widen the market footprint, the agency said.

It can be noted that the sector was once a very busy field with up to half a dozen operators to choose from. However, in the last five years, operators like Vodafone and Idea went for a meger, some retreated and some were also forced to go into bankruptcy because of the financial difficulties.

Among the operators, it said Jio has strong or moderate presence in all the allied services, except enterprise segment where it is non-existent, while Bharti Airtel lacks broadcasting presence and Vodafone Idea doesn not have a presence in broadcasting, payment wallets and direct to home.

The increasing data usage and rising proportion of higher average revenue per user data customers in the overall subscriber mix indicate that, even without tariff hikes, the sector is structurally moving towards a higher- average revenue per user regime, it said.

Competition intensity has alleviated over the last one year, as evident from narrowing of tariff differentials among telcos, it said. Evolution of the industry over the coming quarters will remain a key monitorable since it will determine whether the Indian mobility market will remain a 3+1 player market or will transition to a 2.5+1 player market and how telcos will respond to the next phase of consolidation in the industry, the agency said.

Telecom advertising in India to grow at 11% by 2023: Report

Source: LiveMint.com, Mar 22, 2021

New Delhi: India will be the fastest-growing market for telecom advertising between 2020 and 2023, registering an 11% annual growth, said a report by media agency Zenith.

This is much higher than the telecom advertising globally which is predicted to grow at an average rate of 4.5% a year to 2023 as its recovers from an 8.7% decline in 2020, according to Business Intelligence – Telecommunications report, published on Monday.

Telecom ad spend in the 12 key global markets included in the report will rise from $17.8 billion in 2020 to $18.7 billion in 2021, and then return to its pre-pandemic level of $19.5 billion in 2022.

Telecom segment comprises services and equipment facilitating the transmission of voice calls and data by land lines and mobile networks.

According to eMarketer, only 31% of the population in India currently has a smartphone, but thanks to the launch of low-price handsets such as the Jio phone, this proportion is rising rapidly.

“The telecom sector in India in 2021 is anticipating a robust growth on the basis of an increase in tariff pricing, demand for data, growing number of mobile users and hopefully the launch of 5G in the last quarter. This will lead to a substantial increase in media investments by the key players especially on television & digital,” said Jai Lala, COO, Zenith India.

While most of the global markets are forecast to grow between 3% and 6% a year to 2023, Russia will grow at 8% and France at 6%.

In terms of key trends, the report stated that smartphone sales will start to spring back this year once consumers feel more confident in their future. Consumers are becoming more willing to finance and purchase handsets independently from their network providers, giving manufacturers and retailers a greater incentive to advertise handsets themselves.

Meanwhile, the networks will seek to recoup their investment in 5G licences and infrastructure through new services and more expensive data packages.

Globally, telecom brands are cutting back their spending on traditional media platforms.

Zenith forecasts that between 2019 and 2023, telecoms brands will reduce their television ad spend by an average of 2% a year, compared to a 3.5% annual reduction across all categories. They will also reduce their radio ad spend by 2.8% a year, compared to 4.1% a year for the market as a whole.

Telecom brands will increase their digital ad spend at an average rate of 5% a year between 2019 and 2023. By 2023, digital advertising will account for 54% of all telecom advertising. “Covid-19 has demonstrated how dependent we are on good, fast and reliable internet connections. Telecoms companies have been the unsung heroes of the pandemic, shifting our lives online and keeping us connected to entertainment, work and commerce. The spread of 5G and the reality of our new-found virtual lives give telecom brands the opportunity to move into the limelight,” said Ben Lukawski, global chief strategy officer, Zenith.

Govt to amend telecom licence norms to control sourcing from China, non-friendly destinations

Source: The Economic Times, Mar 08, 2021

The government is likely to amend the telecom licence norms this month to incorporate the guidelines of national security directive on telecommunication sector that will help in controlling installation of network equipment from China and other non-friendly countries.

Under the provisions of this directive, the government will declare a list of trusted sources and trusted products for installation in the country’s telecom network.

“DoT is almost ready to amend licence conditions to incorporate guidelines NSD (national security directive). It should be done in the coming week,” an official source said.

Notably, Chinese telecom gear maker Huawei has had its run-ins in the past with the governments of Canada and the US. The US has alleged that it did not comply with its cybersecurity and privacy laws, leaving the country and the citizens vulnerable to espionage.

The list of the trusted source and product for installation in telecom networks will be decided based on the approval of a committee headed by the deputy national security advisor.

The committee will consist of members from relevant departments, ministries and will also have two members from the industry and independent experts.

The directive, however, does not envisage mandatory replacement of the existing equipment already inducted in the network of telecom operators and it will also not affect annual maintenance contracts or updates to existing equipment already inducted in the network as on date of effect of the directive. While the government has not barred procurement of equipment from Chinese companies, it amended the general financial rules (GFR) 2017 to enable the imposition of restrictions on bidders in public procurement from countries that share a land border with India on grounds of defence of India, or matters directly or indirectly related thereto, including national security.

Public companies need to scrap tenders if a qualified bidder is from a country that shares a land border with India, which includes China.

Customers may face higher tariff as telcos increase investment in network

Source: LiveMint.com, Mar 03, 2021

Investments in spectrum and equipment to build robust network ahead of the roll out of 5G wireless service will require telecom operators to raise prices of voice and data services in the medium term but they may not do it immediately, said analysts.

As a result, customers may have to shell out more for the services they avail due to tariff hikes. Bharti Airtel Ltd’s management has said the telco will not lead in the next tariff hike, while rival Vodafone Idea Ltd has maintained that it will not shy away from moving first in the industry.

With its new offers on 4G feature phone, JioPhone, launched on 1 March, Reliance Jio Infocomm Ltd may not look at raising prices in the near term as it aims to acquire 300 million low-end 2G customers on other networks, analysts said.

“While Jio is likely to focus on reviving subscriber growth in the near term, over the medium term, it will have to take price hikes to support network investments and the upcoming 5G roll out, in our view,” Credit Suisse said in a report.

To augment their coverage and improve service quality of 4G services, Reliance Jio and Airtel placed bids for spectrum higher than the expectations of the government and analysts.

The telcos bought airwaves in the sub-gigahertz (sub-GHz) bands, with Airtel intending to use them for indoor penetration and expand its rural footprint, while Jio aims to add more subscribers by focusing on customer experience.

In the current fiscal, Jio’s net subscriber additions have slowed to 7 million a quarter, a 65% decline from the 20 million it added every quarter in the previous year. It added only 478,917 users in December versus rival Airtel’s addition of 4.1 million.

“We think the auction bid placements should further strengthen the two larger operators (Airtel and Jio), both of which remain well positioned to gain market share from Vodafone Idea Ltd. With large investments in network, tariff hikes are inevitable, in our view,” said BNP Paribas in a report.

Reliance Jio acquired spectrum of ₹57,122.65 crore, while Airtel bid for airwaves worth ₹18,698.75 crore. Jio bought spectrum worth ₹34,491 crore in the 800MHz band alone, which was due for renewal in 18 of 22 telecom circles in the country.

The delay in tariff hike, however, could be a cause of concern for Vodafone Idea, which bought airwaves worth only ₹1,993.40 crore, mostly for renewal due to large spectrum holding and stressed financials. “The cash outgo will be keenly watched given high debt level of the incumbents and continued delay in tariff hike. This could lead to funding gap concern for Vodafone Idea given continued delay in raising fund, high debt level, and renewed pricing aggression in some segments,” Axis Capital said in a report.

Spectrum auction: Telcos place bids worth Rs 77,815 cr; Jio biggest buyer

Source: Business Standard, Mar 02, 2021

New Delhi: The auction of telecom spectrum concluded on Tuesday and airwaves worth Rs 77,814.80 cr were bought in two days, Telecom Secretary Anshu Prakash said on Tuesday.

The official said spectrum auction concluded on Tuesday at 12.45 pm after 6 rounds of bidding. Bids were received in 800 MHz, 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz bands but there were no takers for the airwaves in the premium 700 and 2500 MHz bands.

About one-third of the spectrum being auctioned is in the 700 MHz band, which was completely unsold during the 2016 auctions.

Spectrum Usage Charges (SUC) for the spectrum acquired in this auction will be payable at the rate of 3 per cent of Adjusted Gross Revenue (AGR) of the licensee, excluding revenue from wireline services.

Reliance Jio emerged as the biggest buyer, placing orders for Rs 57,122.65 cr of spectrum.

The company had placed bids for 488.35 MHz spectrum in the auction. It said the acquired spectrum was in all 22 circles across India.

“Jio has revolutionised the digital landscape of India with the country becoming the fastest adopter of Digital Life. We want to ensure that we keep on enhancing experiences, not only for our existing customers, but also for the next 300 million users that will move to digital services. With our increased spectrum footprint, we are ready to further expand the digital footprint in India as well as get ourselves ready for the imminent 5G rollout,” Mukesh Ambani, Chairman of Reliance Industries said.

“Through this acquisition, Jio’s total owned spectrum footprint has increased significantly, by 55 per cent to 1,717 MHz,” the company said.

Meanwhile, Vodafone Idea Ltd (VI) bought spectrum worth Rs 1,993.40 cr in the auction. It had placed bids for 0.8 MHz spectrum in the auction. VI said the spectrum acquired by it is in five circles and will help boost 4G coverage and capacity.

Bharti Airtel in a seperate statement on Tuesday said it has picked up radiowaves worth Rs 18,699 crore in the auction.

Airtel said the spectrum acquired through the latest auction will also help improve its coverage in villages by offering the superior experience to an additional 90 million customers in India.

The company added that despite the large amount of spectrum made available, the 700 MHz band bands did not get any bid from the operators as it made no economic case for them based on the high reserve prices. Over 2,250 MHz of spectrum, that carry telecom signals, in seven bands worth nearly Rs 4 trillion at the reserve or start price, was offered for bidding in the auction that began on Monday.

Telecom sector revenue growth recovers to pre-Jio entry levels

Source: The Hindu Business Line, Feb 25, 2021

Mumbai: Telecom revenue during the third quarter of the current fiscal indicates that the sector is coming out of the financial stress caused to the entry of Reliance Jio.

The latest sector numbers published by TRAI reveal that net mobile revenues in India rose 4.5 per cent quarter on quarter to an annualised $25 billion in 3QFY21.

“This is in line with the peak levels seen before Jio’s entry. Recovery in sector revenues weakens the case for floor tariffs since revenue pressure was the key reason cited for introducing floor tariffs,” according to analysts at brokerage firm Jefferies.

Jio’s entry with cheap data rates and zero tariff for voice calls in 2016, had disrupted the telecom business model for incumbent operators. However, over the last year, all operators, including Jio have been increasing tariffs.

The rise in revenues in third quarter was led by urban-centric markets with metros and A-Circles reporting a 10 per cent and 5 per cent QoQ rise, respectively. Rural centric B-Circle and C-Circles reported a slower 3-4 per cent QoQ growth, respectively.

“This is a reversal of the trend seen in 1QFY21 and possibly reflects the migration of people from rural to urban areas as cities open. A similar trend is visible in active subscribers with metros and A-Circles adding 38 million while B-Circle and CCircles saw a 20 million decline over second half of calendar year 2020,” Jefferies said.

Market share shifts continued with Reliance Jio gaining 445 basis points share and Bharti Airtel gaining 120 basis points share over 9 months of FY21.

Vodafone Idea lost 620 bps market share, taking its market share to 21 per cent, nearly half of what it was in FY17. Vodafone Idea’s revenue market share losses are no longer just being driven by its weaker markets.

During 9MFY21, nearly 60 per cent of Vodafone Idea’s 620bps market share loss came from its top-3 markets that form 35 percent of its revenues. Despite these markets growing at 12-26 per cent YoY, Vodafone Idea has witnessed a decline of 3-10 per cent YoY in net revenues here.

Overall, sector revenues are up 40 per cent from lows of 4QFY19 but are still marginally lower (1 per cent) than sector’s historical quarter high reported in 1QFY17. “We see Reliance Jio and Bharti Airtel as well-placed to benefit from sector growth; the latter has 4G penetration at 54 per cent of its total mobile subscribers and Arpu 10-24 per cent ahead of peers,” CLSA said in a research report.

India’s smartphone market set to cross Rs 2-trillion mark in 2021

Source: Business Standard, Feb 23, 2021

New Delhi: Buoyed by renewed surge in the demand for smartphones and rising device costs may push the local smartphone market beyond the record Rs 2-trillion mark in 2021.

While disruptions from the Covid-19 pandemic led to the market size shrinking for the first time last year, in 2021, the market is expected to touch unprecedented levels — both in terms of volume and value.

In 2020, the local market recorded a fall in the number of units shipped, as shortage in supply of components and the lockdown brought the market to its knees during the first half of the year.

“Stay-at-home mandates, remote learning, travel restrictions, and manufacturing shutdowns led to a sluggish first half (shipments declined 26 per cent year-on-year, or YoY),” observed the International Data Corporation (IDC).

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets.

Total shipments recorded its first fall — declining 2 per cent to 150 million units, from 153 million in 2019.

However, it is the fall in the average selling price (ASP) of handsets that impacted the market size more than the fall in volume numbers.

According to estimates, the ASP for smartphones last year came down 5 per cent YoY to Rs 11,200. Since their introduction in the market in 2010, ASP for smartphones before 2020 have never recorded a fall in the Indian market.

Resultantly, in 2020, the total market size shrank to Rs 1.68 trillion, from Rs 1.77 trillion in 2019.

According to experts, a poor economic outlook played a key role in this decline.

“Mass-market consumers were less inclined towards upgrading their handsets. Most of the volumes were driven by purchases that were absolutely imperative,” said Navkendar Singh, research director at IDC.

Salary cuts, job losses, and subdued consumer sentiment — a large section of consumers opted for cheaper options that were just enough to serve the purpose. It was a major paradigm shift from the earlier trend where mass-market consumers were driving ASP up, even as they were willing to spend more on smartphones as a lifestyle barometer.

In 2021, however, with a significant jump in ASP and higher volumes, the market is estimated to touch Rs 2 trillion. From its previous high of Rs 11,600 in 2019, the ASP for smartphones is now estimated to breach Rs 12,300.

A clutch of factors is set to push the market up. Since the economy snapped out of the lockdown mode, sales have grown by leaps and bounds. According to analysts, prevailing travel restrictions have rendered an urgent need for devices supporting activities such as entertainment, work from home, and remote learning, resulting in a demand for more devices per household.

While in the September quarter, the shipments grew 17 per cent YoY, in December, it recorded a whopping 21 per cent rise — setting new records for both quarters.

IDC now estimates that in 2021, the smartphone market will grow in high single digits, taking the total shipment beyond the 160-million mark.

Unlike last year, when need-based cheaper options had led the market, this time around it will be “driven majorly by upgrading consumers”, said IDC. This, coupled with the rise in 5G devices across the price range, is expected to boost the average price of smartphones.

Despite uncertainty around the launch of 5G services, the shipment of 5G-enabled smartphones crossed 3 million in 2020.

According to Madhav Sheth, vice-president, Realme and chief executive officer, Realme India & Europe, “The handset market will witness a strong supply ecosystem for 5G-ready smartphones in 2021.” The firm is planning to launch 5G devices in the affordable segment.

Nipun Marya, director-brand strategy, Vivo India, said the company will launch 5G devices “across categories at various price points”.

In recent quarters, Chinese device manufacturers have driven the 5G market by rolling out aggressively-priced devices. Flagship launches by market leader Xiaomi at under Rs 20,000 have already brought the war on the doorstep of the affordable segment. “As more 5G devices enter 2021, the ASP for smartphones is expected to rise. We expect vendors to launch 5G devices at multiple price points, backed by aggressive promotions,” said Upasana Joshi, associate research manager, IDC India.

Govt approves over Rs 12000 cr manufacturing push for telecom equipment

Source: Business Standard, Feb 17, 2021

New Delhi: The government on Wednesday approved a 12,195 crore production-linked incentive (PLI) scheme for telecom gear manufacturing in India, a move that will position the nation as a global powerhouse for production of such equipment ahead of 5G roll-outs.

The PLI scheme for telecom gear manufacturing, will be operational from April 1, 2021.

It will lead to incremental production of around Rs 2.4 lakh crores with exports of around Rs 2 lakh crores over five years. The scheme is expected to bring investment of over Rs 3,000 crore and generate huge direct and indirect employment and taxes both, an official release said.

Briefing reporters after a meeting of the Cabinet, Communications Minister Ravi Shankar Prasad said that the government is positioning India as a global powerhouse for manufacturing, and has created a conducive environment for ease of doing business.

“Cabinet has approved PLI for telecom sector…to ensure further progress of Make-in-India in telecom equipment space…5G equipment will also come…so it was important to give incentives. We held widespread consultation with stakeholders,” Prasad said adding that the scheme also aims to promote MSMEs in “Aatmanirbhar Bharat’.

The scheme is expected to offset huge imports of telecom equipment worth more than Rs 50,000 crores and reinforce it with Made in India products both for domestic markets and exports, the release said.

The new scheme has an outlay of Rs 12,195 crores over five years, and its eligibility will be subject to achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.

The incentive structure ranges between 4 and 7 per cent for different categories and years.

Financial Year 2019-20 will be treated as the base year for computation of cumulative incremental sales of manufactured goods net of taxes, the release added.

Minimum investment threshold for MSMEs has been kept at Rs 10 crores and for others at Rs 100 crores.

“Once qualified, the investor will be incentivized up to 20 times of minimum investment threshold enabling them to utilize their unused capacity,” the release said. Prasad said that government will soon come up with PLI scheme to encourage production of laptops and tablet PCs.

India smartphone market declines 1.7% in CY2020 after years of growth: IDC

Source: Business Standard, Feb 15, 2021

Mumbai: Stay-at-home mandates, remote work, remote education, travel restrictions, and manufacturing shutdowns impacted the India smartphone market, which exited CY2020 at 150 million units, down 1.7 per cent year-on-year, said the report by International Data Corporation’s (IDC).

The first half of the year (H1-2020) was marked by sluggish growth with demand down 26 per cent YoY, the second half saw recovery. H2-2020 recovered with 19 per cent YoY growth. Lockdowns and restrictions rendered an urgent need for devices supporting activities such as entertainment, work from home, and remote learning, resulting in more devices per household, and leading to a resurgence in demand for consumer devices including smartphones, consumer notebooks, and tablets in 2020, said the IDC report.

The fourth quarter of CY2020 (October-December) posted record fourth-quarter smartphone shipments of 45 million devices, with 21 per cent YoY growth. While smartphone shipments for the full year 2020 remained below the pre-pandemic level, IDC believes a stronger market acceleration in 2021 will be led by upgrades.

“The rebound of the smartphone market in the latter half of 2020 underscores the importance of devices in our day-to-day lives. In 2021, IDC expects the smartphone market to grow in high single-digit YoY, driven majorly by upgrading consumers, in the mid-range segment and affordable 5G offerings (at about $250). Also, revamped offline channel play is anticipated, to bring back growth in the very important brick and mortar counters for long-term sustainability,” said Navkendar Singh, Research Director, Client Devices & IPDS, IDC India in a statement.

In terms of handset vendors, Xiaomi’s performance in 2020 was led by its affordable Redmi 8 series, gradually replaced by the Redmi 9 series in H2-2020. Though it continued to face supply shortages through H2-2020, resulting in an annual decline, Xiaomi maintained its leadership in 2020. POCO, Xiaomi’s sub-brand, entered the “top 5 online channel vendor list”, strengthening Xiaomi’s online position at 39 per cent share in 2020.

Samsung remained in its second spot in the 2020 ranking, with its online-heavy portfolio driven by the Galaxy M series and the newly launched F series. Online channel registered strong 65 per cent YoY growth, while the offline channel shipments declined by 28 per cent, thus leading to an overall drop of 4 per cent in 2020.

Vivo stood at the third position, with strong growth in the offline channel, dethroning Samsung for the leadership position in the offline channel with 30 per cent share, driven by the affordable Y series and dedicated efforts in marketing and promotional activities in offline channels, said IDC.

Realme surpassed OPPO for the fourth slot with 19 million annual shipments, growing by 19 per cent YoY in 2020. It continued to be the second-largest online vendor, with its affordable C-series as a major driver.

Apple, at the seventh slot, exited 2020 with YoY growth of 93 per cent, driven by previous generation products like the iPhone 11, iPhone SE (2020), and iPhone XR, even as the new iPhone 12 series had a strong pick-up in Q4CY20.