Reliance Jio vs Bharti Airtel vs Vodafone Idea (VI) - Telecom share news

Today we will talk about the telecom sector. What is happening, what is the current status, and what is the growth potential in future. Which two events drastically changed the telecom sector, will cover the big players, Jio, Airtel, and Vodafone. What is their revenue, how are their growth, and the future of the sector.

Telecom sector in India

The sector has seen a lot of changes, it has evolved, do you remember the time when there was dial-up connections and we had to wait for hours to download a movie or a song.

There was a time when we used to pay Rs 16 for an SMS, maybe the people born after 2000 won't know the happiness of free incoming calls. When we got 3G after 2G, it felt like heaven, and now we are talking about 5G.

Calls and Data is very cheap and people have mobile phones even in the smallest part of the country. This industry has seen a lot of development, If we talk about the industry overview, India is the world's second-largest telecom industry.

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It has a subscriber base of 1.16 billion and has seen good growth in the past 10 years. If we see the total internet users, India comes at the second position And this number is increasing. From FY16 it has grown by 21.36% CAGR to 734.19 million in FY20.

According to an estimate, due to the cheap internet rates and increasing mobile phone usage, 500 million new users will be added that will generate new opportunities, meaning India has a lot of potential.

The gross revenue of the telecom sector in the third quarter of FY21 was 68,228 Crores. We can divide the whole industry into two parts, first being telecom equipment and infra companies which make material for 2G,5G.

It is the physical component on which our internet works like telephone wires, cables, satellites, microwaves, and towers. 

Companies like Indus Towers and ITI Ltd makes these components And the second is telecom services providers like Reliance Jio, Bharti Airtel and Vodafone Idea ltd. These are communication service providers, CSPs which transport data electronically. We will talk about these service providers, the changes and will focus on these 3 top players Reliance Jio, Bharti Airtel, and Vodafone Idea who have the largest market share. We will also talk about the 2 major events that changed the industry, Jio's launch and Telecom AGR dues.

Reliance Jio vs Bharti Airtel vs Vodafone Idea

Let us start by discussing Reliance Jio, Mukesh Ambani launched Jio in 2016 saying that all of its services like jio tv, cinema will be free by year end which was later extended to March 2017, and everyone might remember it. In the coming 3 years, they drastically reduced the prices of data and 4G phones and became the largest service provider with over 330 million subscribers in mid-2019.

Reliance's share which was going very stable for many years saw a jump after Jio launch. We will try to depict the changes in Reliance from these 5 charts. Due to the bundle tariff plans and high data usage, the mobile data volume saw an increase of 4160% 3G, 4G users started growing and the voice-only customer base fell. The number of data users rose by 56% in FY19-20. The total voice volume and total voice usage increased due to the unlimited voice plans. Due to the reduced plan rates, the average revenue per user also decreased and then the price wars started between the competitors.

Some companies were not able to compete and went bankrupt such as Aircel or Anil Ambani's Reliance Communications and some thought of merging such as Vodafone and Idea which became VodafoneIdea ltd.

The second event was the AGR dues, and now let us understand what are AGR dues Whenever telecom operators earn money, the government asks for a license fee. These operators earn money through various channels, for example, Airtel charges you a small fee if you connect with another operator and is called IUC, interconnect usage charge and this cannot be kept with Airtel themselves and has to transfer to the other operator so they bill you this charge and then transfer to the other operator.

Airtel recognizes this IUC in their revenue but it is actually not theirs Now the government can ask for a small part from the IUC as it is Airtel's revenue but this will turn into a controversial matter So the ideal way to deal with problems like these it to adjust IUC downwards meaning to remove them and after adjusting, you get adjusted gross revenue, AGR, and the govt takes their part from it and hence the name AGR, but here comes another controversy, the operators feel the govt cut should only come from the telecom business revenue and not from any other revenue For example, income from sale of a tower of interest from a bank deposit should not be used for the govt cut.

The telecom companies feels this is unfair and on the other hand, the govt wants a cut from every revenue Sale of a building, interest income and even from the ones which are not talked about. The govt wants a charge from every revenue because of a simple reason that the telecom companies are being able to make money through these only Because they have the telecom license and are being to run their business And because they have the license they are being able to generate revenues and they have to pay the amounts which were very huge. So the telecom operators approached the courts and the decision was in the favour of the govt. So if we see the timeline, in Oct 2019 the order was ruled out and the companies were given time till Jan 2020 to clear all dues.

Airtel, Vodafone and others missed the timeline except Reliance Jio which cleared all its 195 Crores dues. In March 2020, the govt said that they will consider payments in installments. In Sept 2020, the SC gave the companies 10 years to clear the AGR dues 10% of the amount had to paid by March 2021 and the rest by March 2031. The toral AGR dues of Airtel were 43,990 Crores and 58,254 Crores of Vodafone Idea. Both the companies have paid a small amount but this amount will significantly affect their annual profitability Whereas Reliance Jio cleared all dues. If we compare Jio, Airtel, and VodafoneIdea they are the top 3 players in terms of wireless subscribers.

In Feb 2021, the total market share in terms of wireless subscribers of Jio was 35.54%, Airtel at 29.83%, and Vodafone Idea at 24.20%.

Let us see the average revenue per user for the past 5 quarters.

From March 2020 till March 2021, Jio's ARPU rose from Rs 130 to Rs 138, Airtel from 135 to 166 in Dec 2020 but fell to 145 in March 2021 , whereas Vodafone Idea remained the same at 121 till Dec 2020. The Q4 data is not available for Vodafone Idea

Now if we see the wireless subscriptions in the past 11 months of FY2021. We can observe that Airtel is slowly acquiring market share from Jio. Vodafone Idea was a fall in numbers just to see a small increase in Feb 2021. 

Airtel acquired market share and even earned the highest average revenue per user. If we see the broadband userbase, these three have the highest market share In Feb 2021, Reliance Jio had 417.42 million broadband subscribers. Bharti Airtel at 188.21 million and Vodafone Idea at 123.28 million.

Now let us see the future of the telecom industry.

The general consensus says that 5G is bound to come, which may happen in a year of 3. But till then have to make do with 4G. According to a parliamentary report, 4G will dominate the market for 5-6 years meaning the telecom companies and the govt would have to work hard to make 4G accessible to all. In an auction of 4G held in March 2021, Jio bagged the biggest share of 57,100 Crores whereas Airtel was at 18,700 Crore but Vodafone Idea bid only 2000 Crores. The 5G spectrum auction will happen in 2022, but let's understand what these?

You might have a spectrum like 700 MHz, 800 MHz, 2300 MHz

You can imagine it highways as airways, suppose you are a telecom company and want to provide voice and data services so you cannot do this without access of those highways, these bands are divided in multiple regions like Mumbai, NCR, etc

Suppose you bought a band of 700 MHz in Mumbai, hence you have got the exclusive right to use the airwaves on the 700 MHz band. These auctions help companies to distribute airwaves in different regions on different bands and hence the one who pays the more gets it.

Like the AGR dues, a dispute between the Dept of Telecommunication and telecom companies on a one-time spectrum charge in SC. It is based on the rules of DoT meaning the companies have to pay a charge on the excess spectrum So whenever the 5G spectrum auction will happen, there will be a lot of cash outlay for Airtel and Vodafone Idea who are already struggling due to the AGR dues and the disruption caused due to Reliance Jio and with a threat of OTST dues.

So the conclusion is that these are the top players in the telecom sector by market share, but Airtel and Vodafone Idea are still facing problems as we can see from these numbers. 

In the last 12 months, only Reliance Jio has made a profit of 12537 Crores, Airtel made a loss of 15,048 Crores and Vodafone Idea a loss of 48,854 Crores, Jio's net debt is the lowest at 21,900 Crore as compared to Airtel at 1,49,319 Crore and Vodafone Idea at 1,03,492 Crores

The EBITDA in the last 12 months of Jio has been 32,359 Crore, Airtel at 45,279 Crore and Vodafone Idea at 16,495 Crore. Now we will see the Net Debt/EBITDA ratio which tells us how the company is paying off its loans

Reliance Jio at 0.68 from which we can say that for one part of debt, the EBITDA is 0.68.

Airtel at 3.30 and Vodafone Idea at 6.27. Cah borrowings are subtracted from Net Debts formula.

We make all article for educational purposes so that we can deliver the right information. You can further do your own research, invest for the long term and make good returns.