Bharti Airtel and Idea Cellular is Predicted to Face Challenge in 2016

By Staff Writer

Mar 05, 2016 01:54 AM EST

Bharti Airtel and Idea Cellular, two of India's largest telecom operators have their revenue market share in 2015 surged. Meanwhile, in 2016 Morgan Stanley predicted the companies will face substantial challenge.

The largest telecom operator Bharti Airtel Ltd and Idea Cellular Ltd the third-largest operator were the only ones with increasing revenue market share in 2015. Other telecoms are losing or stable, like the second-largest Vodafone India Ltd which ended the year with a flat revenue market share.

Revenue market share (RMS) of Bharti Airtel increased 70 points to 31.6% while Vodafone India only booked 23% and Idea gained 40 points to reach 18.9%. Airtel has a sharp increase in five markets in India, led by Andhra Pradesh, Karnataka and Mumbai as the company's largest market. While Idea Cellular strengthened its base customers in Punjab, Maharashtra and Andhra Pradesh.

Live Mint cited report from telecom industry analyst at HSBC Securities and Capital Markets (India) Rajiv Sharma who said, "Combined RMS of the top three telcos increased by 80 basis points this quarter to 73.6% and was up 180 basis points (year-on-year), highlighting that quasi sector consolidation continues and implying incumbent telcos have a higher share in data revenues."

RMS data was calculated using one-hundredth of a percentage point. The data was obtained from Telecom Regulatory Authority of India (TRAI) and company filings. TRAI released its subscription data last week.

CLSA Research analysts Deepti Chaturvedi and Akshat Agarwal commented on Bharti Airtel's strong performance, "The latest TRAI data reveals that during the 9MFY16 (first nine months of fiscal 2016), Bharti Airtel's revenue market share increased by 70 basis points YoY (year-on-year) to 31.4%, the highest since the 2010-11 financial year."

Meanwhile, starting 2016, as competition in the market has grown more intense, Bharti Airtel and Idea Cellular may face substantial challenge in maintaining their growth. Economic Times reported the outlook from U.S.-based Morgan Stanley that said, "We project a lack of free cash flows for both Bharti and Idea and single-digit ROCE, or `return on capital employed', amid increasing capex and recurring spectrum payments (for the March 2015 auction), coupled with a Reliance Jio launch overhang."

Morgan Stanley prompted Reliance Jio Infocomm plan to launch 4G services later this year will also limit Bharti Airtel and Idea's free cash flows. ET Telecom also reported that U.S.-based firm also warned that participation in the next spectrum sale around June-July could "worsen the scenario and dent their balance sheets".

Reliance Jio Infocomm is a telecommunication company owned by billionnaire Mukesh Ambani, as he purchased 95% shares of Infotel Broadband Services Limited (IBSL) in 2010. The company was renamed into Reliance Jio Infocomm in 2013. Reliance Jio will launch its 4G broadband services throughout India in the first quarter of this year.

Bharti Airtel and Idea Cellular that have maintained strong revenue stream in 2015 will face a tougher challenge in 2016. As Reliance Jio Infocomm and its nationwide 4G service will pose a serious challenge to their market leadership.

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