India court decision spells price hikes, consolidation – analysts



Consolidation may be in the cards for India’s telco industry, after the country’s Supreme Court issued a final verdict Tuesday giving major operators Bharti Airtel and Vodafone Idea 10 years to pay back billions of dollars in owed amounts.

The 10-year payment schedule for outstanding adjusted gross revenue (AGR) dues is only half of the 20-year timeline India’s government was seeking and less than the 15 years Bharti Airtel and Vodafone Idea asked for, according to the Economic Times of India (ET).

Tuesday’s outcome stems from a lengthy legal battle over calculating AGR dues, and whether service providers had to pay a share from revenues generated outside of their core telecom businesses. Fees for spectrum licenses are also part of the dues, and last November the court ruled unfavorably against carriers, demanding payment including back fees and accrued penalties. Originally there was a three-month deadline for combined outstanding fees totaling $19 billion.

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With this week’s decision, India’s Supreme Court removed some uncertainty around the matter of payment timing – asking for 10% of the amount upfront in February 2021, with the remaining 90% paid annually over a decade starting in 2023.

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Among India’s major providers – Bharti Airtel, Vodafone Idea, and relative newcomer Reliance Jio – the verdict is seen as the biggest hit to Vodafone. Analysts at New Street Research and Jeffries India pointed to likely price hikes in order to boost subscriber revenues, and movement toward a market dominated by two operators.

“This tough stance will make it difficult in our view for VIL [Vodafone Idea] to pay spectrum and AGR dues, and invest,” wrote New Street Research analysts led by Chris Hoare, in a Tuesday investor note about the court’s decision. “Unless VIL can raise significant capital the 3 rd player likely remains the sharp underperformer. Bad for VIL and Infratel, good for Bharti.”

Vodafone Idea owes about $6.9 billion, of which it’s paid around $1 billion. Bharti Airtel, meanwhile, has already paid about $2.46 billion of the $5.9 billion it owes, according to ET.

Jio only entered the scene in 2016, so while it has already amassed 398 million subscribers, it’s less impacted by the decision.

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For Bharti Airtel, annual dues are expected to be 22% of the operator’s annualized EBITDA, according to analysts at Jeffries India. For Vodafone Idea that percentage jumps to 111%. 

To offset the cashflow hit, analysts Akshat Agarwal and Pratik Chaudhuri expect that Bharti Airtel will need to increase average revenue per user (ARPU) by 10%, while Vodafone needs to up the metric by 27%.

Tariff hikes are “imminent,” the Jeffries analysts wrote in a Tuesday note to investors. “We believe this will fuel consolidation among Top-2 players.”

New Street anticipated a positive reaction for Bharti, which saw its stock price jump after the decision.

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“Bharti has been weak in the last 2-3 weeks on fears that the company would also have to pay incremental AGR dues on acquired spectrum,” wrote Hoare. “We would expect it to rally in the near term, given final clarity on this and as the market once again considers that either ARPUs are going up materially or we are heading to a 2-player market.”

In the most recent quarter, Vodafone Idea noted that its ability to continue operating as a growing concern was dependent on a positive outcome for the AGR dues payment timeline, as well as successful negotiations with lenders.  

New Street wrote that “despite risks, VIL will likely accept the deal and attempt to make payments.”

Still, both firms expect Vodafone Idea to continue losing market share absent of capital to invest in its network.

For the first quarter of the company’s fiscal 2021, Vodafone had 280 million mobile subscribers in India. By the end of fiscal 2023, Jeffries forecasts Vodafone Idea will have 19% of India’s mobile subscriber market share (versus 24% at the end of 2021). That compares to projected increases over the period for Bharti, which is expected to hold a 29% subscriber share, and Jio at 44%.  

Vodafone is also expected to decline in revenue market share, holding 16% at the end of 2023 by Jeffries’ estimates – versus Bharti capturing 37% and Jio 43% by then.


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