Telecom Q4 Preview | Flat quarter expected due to muted revenue, high 5G rollout costs

Indian telecom companies are expected to witness a lackluster Q4FY23 because of sluggish revenue growth and increased expenses related to the 5G rollout. While Bharti and Airtel are expected to have stable subscriber growth, VI is predicted to continue losing market share.

The Indian telecom players are expected to report flat performance for the fourth quarter of 2023, due to subdued revenue growth and increased costs associated with the rollout of 5G.

According to Emkay Global, Jio is expected to lead in subscriber growth with +5.5 million quarter-on-quarter (QoQ) additions and gain market share from Vodafone-Idea also known as Vi, due to its competitive pricing plans. The brokerage pegs Jio's revenue and EBITDA growth at 1.7 percent and 2.1 percent QoQ, respectively.

For Bharti Airtel, the average revenue per user (ARPU) is projected to grow by 1.5 percent QoQ to Rs 196, due to a better mix and being partially offset by a lower number of days in the quarter.

“On a consolidated basis, we expect revenue to increase 0.5 percent QoQ. Margins would be impacted by the rollout of 5G, which is likely to increase network expense and decline in the Airtel Africa margin,” says Emkay Global.

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Overall wireless subscriber addition for Airtel and Reliance Jio would remain modest in the near term with the increase in 4G/5G subscribers driving subscriber addition, according to Yes Institutional Equities. VIL is expected to continue to lose subscribers mainly in the 2G segment; with muted subscriber addition in the 4G segment.

Although 2G to 4G migration is expected to continue, momentum might be slow this quarter due to the inflationary environment and lack of a tariff hike.

“In Q4FY23, we expect the conversion of 2G subscribers (to 4G) to continue for Bharti Airtel and Vi, though the benefit is likely to be mitigated by: i) a lower number of days in Q4 vs. Q3; ii) lack of major tariff hike benefit, and iii) loss of subscribers for Vi,” according to Emkay Global.

While Bharti raised its entry-level tariffs across India in a staggered manner between mid-November and mid-March, we expect limited revenue uplift in 4Q, says IIFL Securities.

The brokerage expects the tariff hike to be delayed to 2QFY25, “Persisting consumption spending weakness, elevated competitive intensity in light of Jio’s recent pricing interventions in the mobile postpaid and FTTH markets, and potential market-share gain opportunities for JIO and Bharti on Vi’s delay in fund-raising — have reduced the probability of a tariff hike in the near term. With parliamentary elections in India lined up in 1H2024, we now assume tariff hikes only in 2QFY25.”

The last two tariff hikes at the industry level came in December 2019 and November 2021, when telecom operators increased tariffs by around 25‐40 percent in each round, says Yes Institutional Equities, which expects the next tariff in 2nd half of 2023, with an expected hike of around 10‐ 15 percent in the prepaid segment.

On the 5G rollout front, accelerated efforts are being witnessed from all the players, which will be translating into higher costs.

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IIFL Securities sees Airtel’s EBITDA remain flat due to increase in network opex as a result of rapid 5G rollouts. It estimates 0.6 percent QoQ mobile revenue growth in 4Q.

“While Jio is rolling out 5G SA and targeting to cover all Indian towns by Dec 2023; Bharti Airtel is implementing 5G NSA and aims to cover all Indian towns and cities by March’2024. 5G implementation would lead to a higher capex outlay for them in the near term,” according to Yes Institutional Equities. VIL is yet to announce a timeline for 5G rollout in India, it adds.

Overall it believes, Bharti Airtel remains on strong footing with industry-leading ARPU, a growing subscriber base and an excellent track record in business execution and is expected to deliver robust performance going ahead. Jio is expected to maintain the steady growth trend in subscribers and ARPU, though the increase in subscribers might moderate going ahead.

“The financial condition of VIL remains precarious as it continues to lose subscribers and has the lowest ARPU in the industry and we expect it to underperform. It urgently needs massive capital infusion to augment its capex to catch up with peers,” it adds.

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