Increasing the data consumption and slight price hikes are predicted to drive Average Revenue Per User (ARPU) recovery, while advancement to smartphones by the subscribers and access to high-speed internet will be the industry progress catalysts, as per the report. Consolidation is expected to remain in favour of Reliance Jio and Bharti Airtel, as Vodafone Idea keeps bleeding market share, the JP Morgan stated in a note on September 9th 2020.
It further added that the low marginal costs of data provision suggest significant operating leverage from the traffic growth and continued polarisation in favour of the leaders that is Reliance Jio and Bharti Airtel. This, in return, explains a sharp EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) growth for Bharti and Reliance Jio and remained marginalisation of Vodafone Idea Limited, it added. Indian telecom companies have the lowest ROICs (Return on Invested Capital) among the Asian peers functioning in alike market structures, suggesting that true market repair is still owing, it said and pointed to expected ARPU recovery, led by consumption and gentle price hikes.
Elevation to smartphones by the subscribers and access to high-speed internet given little penetration probably below 50 per cent should be main industry growth drivers, the report added. Bharti should succeed at the premium end of the market, driving the greater ARPU, and Jio at the scale end, with superior share gains in revenues and subscribers, it stated.
The Indian telecom industry experienced a noteworthy consolidation over the last three years, along with the top three private operators now accounting for more than 90 per cent of subscribers, revenues and traffic. This has actually driven devastation of sector economics and return ratios. Anyway, consolidation is now expected to drive a secular recovery in ARPUs and return ratios for the sector, the report said. The market structure is expected to become further polarised due to important regulatory consequences and the feeble balance sheet of Vodafone Idea, which can further benefit companies like Reliance Jio and Airtel.
As per the reports, their analysis of industry structure and return ratios displays a strong correlation, especially as a market gets consolidated with 2 to 3 players governing substantial spectrum, subscribers and revenues.