Telecom user growth could get further impacted as the sale of 4G smartphones slow down due to inflation say, analysts. As consumers feel the pinch of inflation and delay smartphone purchases, analysts such as ICICI Securities predict that 4G subscriber addition is likely to be muted for the first quarter of FY23. “4G net add for Bharti Airtel and Vodafone Idea will be muted, at around 3 million and 1 million for Q1, due to lower smartphone sales,” said the ICICI Securities report.
ICICI also noted that this will be a muted quarter for telcos, with Bharti Airtel and Vodafone Idea seeing a subscriber decline of 3 million and 4 million, respectively, while Reliance Jio will have a net addition of 5 million after three quarters of decline. After the tariff hikes, Reliance Jio commenced culling subscribers to improve the overall quality of their subscriber base to make it on par with operators such as Airtel.
Edelweiss also noted that inflation will add pressure to operators’ EBITDA margins. “We expect inflationary cost pressures to pressure the EBITDA margins of Bharti, Vodafone Idea and Reliance Jio by 145bp, 110bp and 45bp, respectively,” said Edelweiss.
The inflationary burden on the consumers will also delaying the penetration of 5G handsets, even as the launch of the service is on the horizon. A recent Crisil report noted that 5G-enabled devices accounted for 15-20 per cent of the overall smartphone purchases in India. This is why Edelweiss also predicts that the spending by operators on 5G services will be staggered which, will, therefore, not add too much pressure on the operators’ balance sheets. “We expect telecom operators to stagger their 5G spectrum purchases due to sufficient spectrum availability and lack of ecosystem. Consequently, the balance sheet commitment could be limited,” said Edelweiss.
Given the poor subscriber additions, analysts expect the next round of tariff hikes in the second half of FY23. Despite major economic pressures, ICICI predicts that operators will see some growth in average revenue per user in Q1. “ARPU will show a growth of 2-4 per cent, and will be aided by one additional day, some benefit of tariff hike taken in December 2021 and some premiumisation (though it would be lower vs earlier quarters).”