Telecom - Freebies to taper off in near future: Motilal Oswal

Motilal Oswal's sector report on Telecom

 
Incumbents are witnessing an increase in distributor/dealer churn (due to a fall in their revenues) post the service launch by RJio. Low commission is another reason – As we understand, the new operator is offering almost double commissions compared to the incumbents and is also aggressively ramping up front-end resources. The distribution network expects the freebies offered currently to taper off over the next 2-3 quarters, with commissions directly linked to recharge amounts. Supply of VoLTE feature phones is short, impacting off take. Bigger handset players are less keen on producing VoLTE feature phones, given (a) the weak value proposition (low 4G data managing capability and user interface) and (b) the limited pricing price arbitrage compared to VoLTE smart phones. The focus is on reducing the VoLTE smart phone price to promote wider acceptance. To optimize their existing data network and increase traffic management capability, telcos are shifting their capex from cell sites to backhaul and network-optimizing products. This could significantly reduce capacity bottlenecks and increase capacity at a non-linear rate. Among incumbents, we understand that Bharti and Vodafone are investing aggressively.

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