Another dismal quarter in the offing for telecom, says Kotak report

MUMBAI: A combination of negatives in the form of demonetization and Jio’s free services is likely to result in fairly dismal 3QFY17 earnings prints for Bharti and Idea, Kotak Institutional Equities said in its Telecom report.

It said the 4QFY17 would be even weaker as the impact of Jio’s free offers amplifies further. The pressure from Jio’s free launch offers would be felt on three fronts it said, which are data volumes (industry’s paid volumes take an expected knock), data pricing (incumbents try to hold on to data volumes) and voice pricing (initial impact of bundled offerings in line with Jio’s announced pricing construct + step-up in aggression on pure voice plans + shift in voice volume mix in favor of lower-realization incoming traffic).

Incidentally, Airtel on Tuesday announced an offer where users can use free mobile data worth Rs. 9,000 for 12 months. With the offer, Airtel customers would get 3GB of free data every month till December 31, 2017 under Airtel 4G prepaid and postpaid plans.

The Kotak report said incumbents had responded to Jio’s free launch offer with selective aggression of their own, in the form of bundled offers with unlimited voice as well as higher discounting on pure voice plans.

It said though this has likely helped the incumbents protect (and perhaps even grow) their outgoing voice traffic at the expense of the ex-Jio challengers, in the brokerage's view, the impact on voice RPM is negative, again.

The note said the brokerage estimated flattish yoy and 9-12% lower qoq data revenues for Bharti and Idea as customers expectedly shift their usage to Jio’s ‘free’ platform.