Exit of challenger telecos fails to yield gains, says Kotak Institutional Equities

The nub of TRAI’s Q3FY18 revenue report was in the sharp q-o-q decline in adjusted AGR for the industry despite Q3 being a quarter where Jio had taken a price hike. More importantly, the collapse in the revenues of the challenger operator set did not translate into absolute revenue gain or reversal in revenue trajectory for the incumbents. We compute Jio’s adjusted AGRMS to be 16.2% for Q3, up from 12.1% in Q2FY18.

Consumer-level spends (our estimate) decline 10% q-o-q in Q3

The nub of TRAI’s Q3FY18 revenue report was in the sharp 10% q-o-q decline in adjusted AGR (good proxy of consumer spends) for the industry. We note that our estimated adjusted AGR (i) does not get impacted by the cut in mobile termination rate; this impacted aggregate gross revenues for the industry in Q3 as MTR was cut to 6 paise/min from 14 paise, and (ii) makes the adjustments for the understated nature of TRAI’s reported AGR numbers. We estimate adjusted AGR or consumer-level spends of Rs 330 bn for Q3FY18, down from `364 bn in Q2FY18 and nearly Rs 395 bn in Q3FY17 (Jio’s services were free then). We note that this was despite Jio’s adjusted AGR moving up to Rs 53 bn (16.2% adjusted AGR market share, AGRMS) from Rs 44 bn (12.1% adjusted AGRMS) in Q2. Essentially, the aggregate consumer spends in the wireless industry were down Rs 34 bn q-o-q and nearly Rs 65 bn on a y-o-y basis.

On an ex-Jio basis, the decline stands at Rs 44 bn and Rs 120 bn, respectively. Of this Rs 120 bn ex-Jio y-o-y consumer spend decline for the industry – (i) the top three incumbents’ share stood at Rs 72 bn (composite spends fell to Rs 228 bn from Rs 300bn in Q3FY17) and (ii) the challenger pack (RCOM, TTSL, Aircel, BSNL, etc.) has seen aggregate spends go down to Rs 49 bn from Rs 97 bn.

In essence, Jio, in a bid to gain a critical initial mass of revenues, has created a net consumer surplus of nearly Rs 260 bn ($4bn) annualised in the past one year. Market-share dogfights creating consumer and exchequer surplus has been the story of the sector for a good portion of its 22-year history.

Jio — reported AGRMS at 19.8%

On a reported basis, without any adjustments, Jio’s pan-India AGRMS stood at 19.8% for Q3, below Bharti’s 28%, very close to Vodafone’s 20.7% and now much above Idea’s 17.3%. Range of AGRMS across circles stood at 13.1% in Kerala at the lower end to as high as 24-27% in circles like Delhi, Gujarat, Punjab, HP, J&K, etc.