“…we expect the wireless industry’s revenue to double to Rs 2,600 billion by FY25… as an ARPU hike looks inevitable given the industry’s future investment needs – requires an ARPU of Rs 230-250 by FY25… for a pre-tax RoCE (return on capital employed) of 12-15 per cent to justify capex; and to avoid a duopoly market – VIL needs APRU of at least Rs 190-200 by FY23 to survive,” said the report.
Fibre-to-the-home and enterprise connectivity businesses, which are still at a nascent stage, could emerge as the new growth engines, it added.
“We expect industry ARPU to post a structural uptrend via a mix of tariff hikes – either regulator driven or market driven; and higher data usage post-COVID-19,” it said.
The report said though the timing of the tariff hike is “uncertain” in the near term given high competitive intensity, regulatory intervention to protect industry health can be expected, in case there is a significant delay in a market-driven tariff hike.
“Further, we believe that the major capex cycle for the industry has been completed and, together with improving revenue and EBITDA (Earnings before Interest Tax Depreciation and Amortisation), would improve the RoCEs of industry players,” it said.
The report also said that Jio’s recent aggressive pricing in post-paid and Fibre-to-the-Home plans should be seen in the context of its low 5-10 per cent market share in both segments.
“Hence, it should not be construed as Jio following a similar strategy as in the pre-paid segment, given it has achieved market leadership here and is on track to its about 50 per cent RMS (revenue market share) target,” it said.
It predicted that strong subscriber additions will continue for Jio.
“We expect Jio’s strong subscriber additions to continue; hence, we expect Jio to attain 50 per cent RMS target by FY25… at the cost of VIL, while Bharti is likely to defend its 30 per cent RMS,” it said.
Asserting that timing of the hike “is uncertain”, it added that Jio and Bharti are likely to be the major beneficiaries of a tariff hike going forward.
On Jio, the report said the company is “aiming for supremacy”, while for Bharti Airtel it said the telco is “strongly defending its fort despite an aggressive price war”.
On Vodafone Idea Ltd (VIL), the report flagged “too many unknowns”. It noted the clarity on the payment schedule post the Supreme Court order as well as the company’s fund raising initiatives but added “only a significant and sustainable increase in ARPU can ensure that VIL survives in the long term, with a sizeable subscriber market share”.
On telecom tower company, Bharti Infratel, the report said that duopoly market risks cloud the long-term growth potential.