KOLKATA: Vodafone India and Idea Cellular could be the most vulnerable to Reliance Jio Infocomm’s push for a 50% revenue market share (RMS) by FY2021, analysts and industry experts said, but added that the 4G entrant’s aggressive ambitions will not be a cakewalk.
Vodafone and Idea’s relatively smaller on-ground 4G presence coupled with challenges of working around the complexities of their potential merger with possible cuts in capex spends over the next 12-to-15 months in the merger lead-up, could be big RMS drags, going forward, they said.
Some fear they may see their combined RMS shrink to under 20% from nearly 44% now. They though expect market leader Bharti Airtel to maintain a 30% RMS, albeit a tad lower than its present 33% level, on grounds that it is ahead both on 4G spectrum holdings and coverage versus its closest incumbent rivals.
In a recent presentation to analysts, Jio — owned by the country’s richest man, Mukesh Ambani — said it aims to corner half of India’s mobile RMS and operating margins of 50% by FY2021.
“Mergers are difficult to execute and if Vodafone and Idea were to cut capex-spending, pre-merger, they may be more vulnerable (on the RMS front) to competition,” HSBC’s telecoms analyst Rajiv Sharma said in a note to clients
Brokerage HSBC sees Idea cutting capex spends by “as much as 40% in FY18,” although it isn’t ruling out the possibility of Vodafone and Idea inking pan-India active infrastructure agreements to improve their combined ability to participate in data growth.
According to Sharma, Jio, by virtue of its “50% RMS estimate seems to be assuming that Vodafone India and Idea Cellular, which are discussing a merger, may see combined RMS fall from nearly 44% currently to less than 20% over the next four years”.
Vodafone India and Idea’s RMS in December quarter were pegged at roughly 24% and 19% respectively.
HSBC feels much hinges on “on how Idea and Vodafone execute pre-merger, as the overall approvals for the merger may take at least 12-15 months”.
Analysts at Goldman Sachs, however, disagree. It called Jio’s 50% RMS target “aggressive”, and said “incumbent telcos are unlikely to lose a meaningful portion of their revenues” as they too have invested quite aggressively in building out data networks.
Morgan Stanley backed the view, saying that “globally, on an average, a new entrant has been able to achieve 10% RMS within three years of launch”. The US brokerage expects “Jio to retain twothirds of its estimated 120 million subscribers” once it starts charging from April, but feels the company’s “revenue per user may remain low initially as it transitions to becoming the first network of choice”.
Goldman Sachs, in fact, estimates Jio’s RMS will not exceed 11% by FY2021, further adding that its targeted “RMS gains would be harder to come by” if the Vodafone-Idea merger takes place.
Experts broadly agree Jio’s higher fiberisation levels place it at an immediate advantage over incumbents, but they expect Airtel to close the gap on this over the next two to three years, on strength of the market leader’s higher fiberisation rate in urban markets.
However, Jio’s core assumption is that telecom industry growth over the next 3-to-4 years will be led by a data boom, which will enable the company to maximise data revenues, having already created the capacity to serve 60% of the demand.