Here’s What CLSA Expects In India’s Telecom Sector In 2021

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Improving revenues and a potential modification of the Supreme Court judgment on adjusted gross revenue dues are among the key factors to watch out for in the Indian telecom sector this year, according to CLSA.

The brokerage is bullish on Bharti Airtel Ltd. because of its stable market share, Tata Communications Ltd. owing to the traction in its enterprise data business and Sterlite Technologies Ltd. as a result of its strong order book.

Here’s what the brokerage’s outlook for 2021 says:

The Much-Awaited IPO

CLSA expects Reliance Jio Infocomm Ltd. to come up with an initial public offering in 2021 following the 33% pre-IPO stake sales to 13 investors.

Battle For Market Leadership

CLSA sees Reliance Jio consolidating its leading position in the market led by lower 4G tariffs and a near 45% market share by FY23. Bharti Airtel’s revenue market share will remain stable at 31% and will also improve its 4G market share, the report said. Vodafone Idea is vulnerable to a higher market share loss in ‘B’ and ‘C’ circle markets—or those with a lower population than metropolitan regions—with the company focusing on established markets.

Potential Tariff Hikes

The industry is also awaiting the telecom regulator’s decision on floor tariffs, which could lead to tariff hikes without disrupting market shares. However, if floor tariffs aren’t implemented over the next few months, the report expects operators to implement hikes by 25-30%.

Data Revenue Boost

The sector’s revenue is likely to grow at an annualised rate of 17% by FY23 helped by rising 4G penetration and likely tariff hikes in 2021. Bharti Airtel and Vodafone Idea will focus on getting their subscribers to adopt 4G bundled plans, which will help drive up average revenue per user. Such plans rates are approximately 50% higher than blended or voice plans.

With 39-52% of mobile subscribers of both the companies on 4G network, there’s a likelihood of ARPU boost from rising 4G data penetration post-Covid-19. The brokerage expects 4G data penetration to reach 82% in FY23.

Digital Services Ramp-Up

Reliance Jio is creating an ecosystem of its own apps (Jio Mart etc.), while Bharti Airtel is entering into partnerships to boost subscribers and ARPU. The battle will also spill into home broadband and enterprise services.

Relief On Pending Dues

The Supreme Court last year granted telecom operators 10 years to pay thousands of crores in statutory after it upheld the government’s calculations on adjusted gross revenue.

Based on self-assessment, Bharti Airtel paid Rs 18,000 crore compared with the Department of Telecommunications’ Rs 44,000-crore projection. Vodafone Idea has paid Rs 7,900 crore compared with the department’s estimated Rs 58,300 crore.

While the department’s final AGR demands are awaited, Bharti Airtel and Vodafone Idea filed curative petitions in the apex court claiming errors in their calculation. If such petitions lead to modification of dues, it may help lower the dues burden of both the companies.

5G Spectrum Pricing Conundrum

The government is planning 5G spectrum auctions in 2021 but exorbitant prices remain a big hurdle. The reserve price is $7 billion per 100MHz pan-India in the 3.3-3.6GHz band.

CLSA expects crash in 5G spectrum cost in 2021 as such auctions may fail due to the high reserve price. Historically, the government has cut prices by 30-40% if no demand was seen in the auction, it said.

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