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Last Updated : Nov 18, 2016 04:12 PM IST | Source: CNBC-TV18

Telco revenues to be hit by 1-3% in Q3 on currency ban: IDFC Sec

The currency ban is impacting many sectors and that includes the telecom business too. However, Abhishek Gupta, Analyst-Telecom, IDFC Securities, says that the estimated impact will only be 1-3 percent on telecom companies in quarter three.

The currency ban is impacting many sectors and that includes the telecom business too. However, Abhishek Gupta, Analyst-Telecom, IDFC Securities, says that the estimated impact will be 1-3 percent on telecom companies in Q3.

Talking about the impact of the demonetisation scheme, he said prepaid recharges of Rs 20-50 ticket size were impacted in the tier II and III cities.

In the post paid segment there were low payments in the first week of the announcement of demonetisation scheme.

Mobile telecoms group Vodafone reported a first-half net loss of USD 5.5 billion on Tuesday, after writing down the value of its Indian business by the same amount.

Gupta said Vodafone sees reduced cash flows from India operations because of the entry of new competition of Reliance Jio.

He also said estimates for Indian operators like Bharti Airtel and Idea have also been cut by Street analysts with the entry of the new rival.

(Reliance Jio is part of Reliance Industries which also owns Network18 and moneycontrol.com)

Below is the verbatim transcript of Abhishek Gupta's interview to Reema Tendulkar & Prashant Nair on CNBC-TV18.

Reema: Today's report suggests that the footfall for mobile recharges have dropped by nearly 70-80 percent in the last ten days. How worried should we be and what impact will it have on the revenues?

A: For demonetisation impact on telecom companies, we need to look into two perspectives - how much is prepaid mix for them and how much is post paid revenue mix. So, prepaid accounts about 80 percent of the revenues of telecom companies and the bulk of the recharges happen in the ticket size of Rs 20-50. So those maybe impacted in mostly tier II, tier III towns while based on our channel checks, some of the metro areas also witnessed some lower footfalls for prepaid recharges.

As far as bill payments for post paid concerns, there were some lower payments during the first weeks of phase during demonetisation announcement. However, this does not impact the revenue of telecom companies because you just repay your post paid bills with a delay of about 10-15 days and you continue to use your connections. Hence the impact is limited to the fact that three-five day delay would be there in prepaid recharges of small ticket sizes, which could be anywhere between 1-3 percent of the revenues for incumbents though it is still hard to do any guess work on how much would be the exact impact but right now we can estimate about 1-3 percent impact on revenues for telecoms in Q3.

Reema: The other big concern is the fact that Vodafone had to write down its India business value by a massive USD 5.5 billion, hit by the Jio entry. For most of the listed telecom players in India, we have already seen big cuts to the stock prices. Do you expect more pain?

A: The Vodafone management has mentioned that because of the increase competitive intensity they are looking at reduced cash flows in the near term from India operations, which is where we have taken the impairment of about 5 billion euro. However, if you look at the Indian operators like Bharti Airtel and Idea Cellular; all the estimates have been cut by street analysts and the principal reason for that has been Reliance Jio. If you look at Reliance Jio\\'s operations at the moment, they have ramped up well. They did about 16 million of subscriber additions in the first month of operation. However, if their run rate continues and we would be setting at around 40 million subscribers by the end of Q3 and that is a substantial base to hit the growth rate for both voice and data businesses of incumbents, still we should be mindful of the fact that a lot of Jio sim cards are now secondary or third sim for most of the subscribers, primarily because the mobile number portability (MNP) has not started happening for the existing incumbents to Jio, which is why only the incremental growth has been slowing down for both voice and data services for incumbents and not as much of a churn in subscribers. The main impact would happen once the MNP churn starts sometime during Q4 and if at all the commercial launch is delayed, what I mean by commercial launch is when the prepaid subscribers or the post paid subscribers of Reliance Jio starts paying, post that when the MNP churn starts - that\\'s the main time when the incumbents would get a lot more aggressive in terms of retaining their subscriber base. So if the commercial launch is delayed by a couple of months, the pain could be pushed out by one quarter or so.

Reema: Reports suggest that there could be a delay in the commercial launch by Jio. Do you think it's likely?

A: It is anybody's guess at the moment but what the Jio management has stated in the recent investor call is that if the experience doesn\\'t improve by December 30, they might consider to increasing it to March 31. However, beyond that we do not have any official confirmation as of now.
First Published on Nov 18, 2016 03:19 pm