Telecom operators Bharti Airtel and Vodafone Idea will see an increase in Average Revenue per User (ARPU) in 2020 as an effect of the tariff hike, which happened a few days ago. According to a report by ICICI Securities, the resolution of AGR liability will be critical for the industry if it is to comprise three private operators- Reliance Jio, Vodafone Idea and Bharti Airtel in the market. If there's no relief from the government on AGR, then it will be a little tough for Vodafone Idea to continue in the market as Bharti Airtel is looking to raise capital again. Right now, Bharti Airtel is ICICI Securities' preferred pick in the sector depending on various aspects.
Airtel and Vodafone Idea ARPU Increase Depends on Various Factors
Bharti Airtel and Vodafone Idea will be required to increase their ARPU in the coming quarters. The recently announced tariff hikes translating into higher revenues for each operator would be watched closely, says ICICI Securities. According to the firm, Bharti Airtel ARPU will likely see an increase of Rs 28, whereas Vodafone Idea ARPU will jump by Rs 23 in the Calendar Year 2020 (CY20). However, the ARPU growth in the coming year will be dependent on various drivers.
Firstly, telcos can cash on the recently announced tariff hike as customers are being provided with limited prepaid plans which offer limited scope for downtrading. While Reliance Jio's prepaid plans are slightly cheaper, the Mukesh Ambani-owned telco is charging for the voice calls to other networks which will make the users think before opting the telco.
Telcos can also focus on adding more 4G subscribers and making the existing 2G/3G users migrate to 4G in the coming quarters, which will drive the ARPU. Another driver to increase ARPU is by adding more postpaid users; The rise in postpaid subscribers with the price gap between prepaid narrowing is surely on the cards. Lastly, telcos need to upgrade the users to higher GB plans which will lead to rising consumption of data.
"We expect ARPU for Bharti / VIL to grow at CAGRs of 16.3% and 11.4% respectively over FY20E-FY22E," said ICICI Securities in its outlook for telecom sector CY20.
Bharti Airtel Subscribers Likely to Retain Thier SIM Cards
Furthermore, the report also says that the Bharti Airtel 4G customers will likely retain their SIM card after the tariff hike. "We certainly see the risk of SIM consolidation in an environment of rising tariffs and we believe Bharti could benefit from such consolidation," added the firm. Airtel' 4G services have also been rated best by most third-party surveys, so it's likely that the users will retain their SIM cards and not move to Jio or BSNL.
On the flip side, Vodafone Idea Limited (VIL) may lose subscribers in case of SIM consolidation due to pending network integration in leadership circles.
Airtel and Vodafone Idea May Lose AGR Market Share
The report also added that both the telcos- Airtel and Vodafone Idea might lose AGR (including NLD) market share. Bharti Airtel broadly maintained its AGR market share at 31% in CY19, however, Vodafone Idea lost significant market share to 27.7%. ICICI Securities also added both the telcos would lose AGR market share considering that the tariff hikes have been taken only in the prepaid segment, which will benefit the competition that has a little contribution from postpaid.
Nonetheless, revenue growth will be strong at CAGRs of 19% and 11% for Bharti and VIL respectively, over FY20E-FY22E, says the firm.
On the whole, ICICI Securities believe that Bharti Airtel will stay stronger despite the AGR dues setback as the telco will be looking to infuse more capital in the coming weeks.
