Telecom Sector – The Explicit and The Implicit

The perceptions and reality about sectors and companies can be a risky thing for an investor as well as a retail customer of the company’s products. This especially holds true for India’s telecom sector where the performance and service quality of companies and their stock prices do not always go hand in hand.

Here we would be talking about two of the major market players in this segment- being Reliance Jio and Bharti Airtel. Both these companies have a huge market share in the sector and have been known for a sustainable and a strong business model. At the same time, both the companies are also preparing to launch 5G in India which is by far not an easy task. The capital requirement and the set up needed for this is huge, even for a company of the stature of Reliance Jio or Bharti Airtel.

Keeping this in mind, let us compare the performance of both the companies post their first quarter results and how prepared they are to take on the new challenge - 5G.

Reliance Jio’s Implicit

The company, supported by a strong customer base, showed a jump in the net profit for the first quarter by 46% to Rs. 89 crores. The company also showed to have highest number of subscribers which was 331.3 million users on June 30. However, the two points which acted against the benefits of this telecom giant were – Jio having the slowest sequential RMS growth as compared to its rivals Bharti Airtel and Vodafone -Idea. Reliance Jio posted a sequential growth of 15 basis points, whereas rival Bharti Airtel saw the sequential growth of 277 basis points.

Also, the quality of service rendered by Reliance Jio in comparison to that of Bharti Airtel has also gone down, all because of the dirt-cheap prices offered by Jio in its tariff plans. The average revenue per user (ARPU) for Jio has also gone down to Rs. 122 as compared to the ARPU for Airtel and Vodafone Idea.

These have been the underlining points of the quarterly report of the company, which was announced recently, showing a relatively slower and negative aspect of the company’s otherwise glorious public story.

Bharti Airtel’s Explicit

On the other hand, Bharti Airtel’s quarterly results showed a net loss of Rs. 2,866 crores in the April-June quarter, its first in 14 years, but that was largely the result of a one-time exceptional expenditure. The customer base of the company had also gone down due to imposing of a minimum monthly recharge pan of Rs. 35. At this, the company’s senior management said that they were happy to see inactive users go, to improve the quality of service they were providing to them. Airtel’s customer base stands at 40.37 crores on June 30, a 10.9 percent drop as compared to the last year.

While these were the negative aspects of the company’s results, the positives were the highest ARPU by Airtel which was at Rs. 129. The telecom’s average data usage per month per customer was also higher than that of Jio’s which showed that the company was focused on improving their services rendered to the customer instead of focusing on increasing subscriber base.

The company is also planning to launch its loyalty program ‘Airtel Thanks’ which would be a loyalty plan for its existing users. This would help Airtel in keeping is foundation strong even if it meant building up on a smaller consumer base.

5G Preparedness

The next thing for the sector now will be to launch 5G in India. However, easier said than done, the system will require a whole new ecosystem to be set up in India from handsets to towers to other infrastructure. While both the major companies – Airtel and Jio are fundamentally prepared to launch the new service, the companies will have to abide by the international requirements for setting up 5G, which might require a long time and also investment.

The government is also planning to hold an auction for the waves through which 5G will be implemented in this financial year. The total base price for the total airwaves is estimated to be Rs. 4.9 lakh crores. This would increase India’s economy by $1 trillion by 2035.

Conclusion

The telecom sector which is witnessing a relative slump has an overall positive outlook. In long term the sector would see a boom which would benefit both users and customers. The recommendation for this sector would be to buy from dips and hold for a longer period of over one year to reap maximum benefits.

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