India’s telecom sector is nearing its recovery with potential tariff hikes and an expected shift to 5G along with 4G spectrum to boost revenue, Bloomberg reported quoting Niket Shah, chief investment officer at Motilal Oswal Asset Management Co.
“We are likely headed for a large hike in tariffs,” Shah told the publication on Monday, April 29. He estimated that one such increase could boost the industry’s earnings before interest, taxes, depreciation, and amortization (EBITDA) by more than 500 billion rupees ( ₹50,000 crore) and add up to 7 trillion rupees ( ₹7 lakh crore) in combined market value.
Shah said the increase in traffic is expected to infuse a new life into the telecom sector. India’s telecom sector has been dealing with cut-throat competition and aggressive policy actions in the last few years, he said according to the Bloomberg report.
America’s top wireless carrier AT&T Inc.’s average revenue per user is $55 ( ₹4,584.80), while the measure is as low as $2 ( ₹166.72) in India, he said.
Indian telecom sector growth
The telecommunications industry is experiencing a robust upward trend in its subscriber base. In February 2024, the industry recorded a significant increase in gross subscriber additions, totalling 39 lakh compared to 22 lakh in January 2024, raising the overall number to 116.5 crore. This growth was primarily driven by RJio and Bharti, who collectively added 51 lakh subscribers. Conversely, Vodafone Idea Ltd (VIL) saw a reduction, losing 10 lakh subscribers, as per Motilal Oswal’s Morning India report released on April 29.
Active subscribers also increased by 15 lakh month-over-month to reach 105.2 crore. This represents a slowdown over the last nine months, averaging 10 lakh new active subscribers per month. RJio and Bharti made gains, while VIL continued to experience declines.
The rural segment saw an addition of 18 lakh subscribers, with RJio and Bharti again leading the growth. RJio maintains a dominant position in rural markets, holding a 39.0% share.
The 4G subscriber base remains strong, with an addition of 52 lakh this month, reaching a total of 87.6 crore, which constitutes 83% of active subscribers. Mobile number portability requests slightly decreased to 11.5 lakh in February, indicative of ongoing high churn and SIM consolidation.
In terms of market shares, Bharti’s active subscriber base increased to 36.4%, adding 15 lakh subscribers. RJio continued to lead with the highest market share at 40.6%, adding 36 lakh 4G subscribers. Meanwhile, VIL’s market share declined, losing subscribers across both gross and active counts.
Government’s plan of action
“It’s clear that the government doesn’t want to see telecom become a duopoly, so we can expect policy support,” said Shah, who oversees $3.2 billion across five equity funds. Motilal Oswal’s flagship fund has returned about 58% in the past year, beating over 90% of peers, as per Bloomberg.
Shah held Bharti Airtel and tower operator Indus Towers Ltd. in his portfolios at the end of March, data compiled by Bloomberg showed.
The telecom sector is now indicating signs of stabilizing, driven by investments into newer technology and efforts by companies to clean up balance sheets. Antique Stock Broking Ltd. estimates a 15 per cent to 17 per cent tariff increase for the sector — the first hike since 2021 — after India’s ongoing elections conclude.
Mobile operators are urging the government to discontinue 2G services, aiming to cut network-related expenses and transition over 200 million users to higher data plans. Motilal Oswal’s Shah expects a full migration of all customers to 4G or 5G within the next two to three years.
These price hikes, alongside the migration and lower interest burden, will drive profits in the coming years, he said.
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Published: 29 Apr 2024, 02:22 PM IST