- Vodafone Idea extended incoming service validity of 90 million consumers
- The current lockdown has larger ramifications for the telcos
The recent recovery in the stock markets notwithstanding, shares of Bharti Airtel Ltd and Vodafone Idea Ltd are still 11-30% lower than their February highs. The Bharti Airtel stock in particular was seen to be virus-proof due to rising data usage and relatively stable demand for telecom services.
But as it turns out, the companies are not completely immune to covid-19 destruction. Telcos have been asked by the government to extend the validity of recharge vouchers of low-income prepaid customers till 3 May, effectively giving a month (April) of free incoming service for these users
Vodafone Idea extended incoming service validity of 90 million consumers. Close to 30 million Bharti Airtel subscribers are unable to recharge their prepaid mobile accounts, said the company.
Motilal Oswal Financial Services Ltd and Edelweiss Securities Ltd do not see a major impact on Airtel’s earnings due to the limited share of low-value users in its customer base. Estimates peg a 1% to revenue and 2-3% impact to quarterly operating earnings.
Even so, the current lockdown has larger ramifications for the telcos. One is the disruption to subscriber additions and upgrade of existing users to the better-priced 4G service.
The other impact is related to downtrading and SIM consolidation. Customers tend to cut discretionary spends in downturns. Consequently they can disband secondary SIM cards. In China, the mobile subscriber base is estimated to have fallen by 15 million during the lockdown, point out analysts at Edelweiss.
On the flip side, lockdowns will restrict customer churn. But slowdown in consumer spends can restrict revenue flow. This will delay market repair.
Most analysts had earlier expected telcos to follow up their December tariff hike with another price rise by June this year. The expectations have now been pushed to the second half of FY21. Even that will be a challenge if the economy goes into a downturn.
“Our analysis had suggested that the tariff hikes undertaken by telcos in December 2019 translated into ₹24-37 of incremental Arpu (assuming no elasticity). However, a combination of lower feature phone recharges due to the lockdown in India; down-trading; and delayed price transmission, has meant that we expect Arpu in 4QFY20 to be up just ₹10-12 per month, with another ₹6-7 increase in 1QFY21 (quarter ending June 2020),” said analysts at Goldman Sachs in a note. Arpu is average revenue per user.
The slower-than-expected revenue growth can have larger ramifications for Vodafone Idea, given its already weak finances.
While both the stocks are beginning to reflect the concerns, most on the Street still expects the sector to clock double-digit revenue growth in FY21, a rarity in the current scenario. This is thanks primarily to the tariff hikes taken last year.
