Blind Gaming by Incumbents Amidst Reliance Jio Launch

Mobile Broadband Vs VoiceGiven the impending threat of Reliance Jio entry, incumbents – Airtel, Vodafone & Idea have accelerated the pace of mobile broadband data network rollout in a blind game forgetting the Economics of Return on Investments. Cumulatively, they have added 72.8K 3G/4G BTSs over the past four quarter (total installed base of 172.5K), with Airtel having added 35.7K, Idea 19.8K and Vodafone 17.3K during the quarter. Idea increased its capex guidance to INR75bn (from INR60-65bn earlier), the third increase in capex guidance over the last 9 months (1.5x of initial guidance), on account of faster data rollout.

Two key debates would continue for the sector – 1) pricing vs volume and what it does to the market dynamics; and 2) capex intensity vs returns – how much is enough given the slowing mobile data growth [3G / 4G].

Idea which in the past has shown best in class business execution, has shown a recent lack of management control in business planning, evident from multiple increases in capex through the year. Even if we were to discount some of the risks due to R Jio entry, we believe a revival of the earnings cycle (beat and raise) would be required to at least build some confidence, which we believe is unlikely to happen in the near future.

Comments are closed.