The continued withdrawal of discounts/ promotions [Airtel here Vodafone here, and Idea here A-Vo-Id Group], the June quarter could be the first quarter of material RPM increase. Our checks suggest a 2% QoQ RPM increase could be reported (two-thirds of our full-year number) in 1Q14. We build a slight drop in MOU on account of elasticity. It will be interesting to see the elasticity behaviour. We build in a slight decline in MOU, though our interactions with operators indicate that they have not seen any elasticity.
Even as we expect the voice RPM uptick to be modest, we believe this marks a turn in RPM trajectory that should hold for some time. More importantly, pricing-led growth has benefits in terms of EBITDA margin expansion – this should aid solid EBITDA growth for the incumbents in the Jun 2013 quarter. With growth driven by pricing and reducing competitive intensity, we expect margins to increase ~70 bp during the quarter for Indian mobile businesses (higher for Idea on a reported basis due to a one-off last quarter).
Voice volume growth – yoy growth in industry voice volumes continues on its deceleration path, in our view – driven by increasing base and slower new sub additions. The key narrative here is different though – it is about market share shift in favor of incumbents – we expect this trend to continue as challengers continue to rationalize their network footprint in a bid to improve their P&Ls. We expect Idea to lead the pack on voice volume growth yet again.
Data growth is expected to remain strong. We believe India is about to witness a boom in data revenue in the medium term, driven by demographics, cheaper smart phones, and 3G deployment. The absence of fixed lines also presents an excellent opportunity for mobile players to monetize the data opportunity.
Data has started showing strong pick-up in the last 2-3 quarters. We believe with falling 3G smart phone prices and easy financing of iPhones and Samsung’s Galaxy phones, data revenue can surprise positively in the near term.
For RCom, we assume that the revenues from RIL inter-city fibre deal gains will be prorated over the four quarters of the year (downside risks), and that forex losses will be charged to equity reserves resulting in an 8% QoQ growth in profits.
Finally, for the Wireless bell Weather, Airtel with aggressive strategy in India, giving favourable YoY comps. This quarter could mark the return to double-digit YoY EBITDA growth, as well as a bottoming out in EPS.