Airtel, Voda-Idea and Jio might command 90% market share: CLSA

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MUMBAI: India’s older telecom operators, along with Reliance Jio Infocomm, may well corner 90% of market share by revenue, going forward, as the Tata group becomes the latest to head out of the wireless business, say analysts.

The current state of the industry, though, is a worry for tower companies such as Reliance Infratel, GTL Infrastructure and American Tower Corp (ATC), which host 20% of the sites for the struggling smaller service providers.

“Tata Teleservices, Reliance Communications (RCom), Aircel, Telenor and Sistema combined form around 20% of sector revenues and their potential exits will open up significant shifts in market share,“ said a recent note by brokerage CLSA.

“With these potential exits and the ongoing Idea Cellular-Vodafone merger, the industry is likely to transition to a four-player market, of which Bharti Airtel, Vodafone-Idea and Jiocombined could account for over 90% of industry revenues,“ said CLSA, adding that faster consolidation will help larger players improve share and profitability .

TURBULENT YEAR

Jio’s entry has re-arranged the telecom deck. Tata Teleservices is looking to down shutters, weighed down by a debt of over `30,000 crore amid falling revenue, widening losses and a failure to find a buyer.RCom explored a merger with Aircel that fell through and both “are staring at potential forced takeover by lenders, which could hit operations further,“ said CLSA. Telenor and Videocon have already exited through sale of assets to Bharti Airtel.

A Goldman Sachs report said that while Tata Teleservices has consistently lost market share to incumbents, its shutdown could mean a reallocation of its current 5% revenue market share among top operators.
According to Goldman Sachs, if there is equal distribution of this 5% among the top three, Bharti Airtel’s India wireless revenue is estimated to increase 4.5% (consolidated revenue by 2.4%) and Jio’s by 7% for 2018-19.

Owing to a potential mix of data subscribers and exposure to some of the more affluent service areas, average revenue per user (ARPU) for the telco stood at Rs 159 a month, which is lower than Airtel and Vodafone, but higher than Idea.
NEW LOW FOR TOWER COMPANIES
On the flip side, tower companies exposed to smaller telcos will be in dire straits. Analysts say scaling down business by smaller operators will place an aggregate 20% of industry cell sites at risk.

CLSA said GTL, ATC India and Reliance Infratel will be the most affected as over 85% of sites at risk are on their towers, while 5% of Bharti Infratel and Indus Towers’ tenancies could be in trouble.

In a statement on October 9, ATC said that it expects to be paid in full for the remainder of its lease term with Tata Teleservices in case the latter folds up. “American Tower expects to fully enforce the average noncancellable remaining contract terms on the leases with Tata Teleservices as well as the other contractual provisions included in the Viom transaction,“ said the US-based firm. As of September-end, its average remaining non-cancellable contract term with Tata Teleservices was over six years.

Goldman Sachs said that this is atypical for tower leases in India, where tenants are mostly allowed to cancel contracts early in exchange for a termination payment. It added, though, that Tata Tele was anchor tenant in the Viom portfolio when ATC acquired its controlling stake from an investor group that included Tata, which may have resulted in a more customised contract structure.

The brokerage expects a low single-digit hit on Bharti Infratel’s operating profits if Tata Teleservices exits. India’s sole listed tower company closed 0.3% higher at Rs 400.20 on the BSE on Tuesday.

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