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Event update: Telecom - Idea-Vodafone lag on data subs addition

Total data subscriber (subs) addition during Mar 2017-18: A look at total data subs addition (including that for 2G) over Mar 2017-18 shows that Idea has added 4.6m with Vodafone at 9m and Bharti Airtel (Bharti) at 28.7m data subs on a net basis. We have included 2G, as these customers being early users of data, would be the first to upgrade to smartphone and 3G/4G high speed data (HSD) plans, in our view. On a combined basis too, Voda-Idea’s net subs addition is lower than that of Bharti. Jio, on the other hand, added 77.9m subs during the same period. In terms of net data add Bharti /Voda-Idea/Jio’s market shares stood at 24%/11%/65%, respectively, during Q4FY17-Q4FY18. 

Idea-Vodafone unable to capture shift in data market: Clearly, Idea and Vodafone have shown weak performance due to their low net data subs addition. Even though HSD subs have grown, we believe the same has come from 2G upgrades, implying weak incremental subs addition within the subscriber base. For instance, Idea added 15m HSD data subs, but their 2G data subs base fell by 10m. Similarly, Vodafone’s HSD data subs addition at 22m was offset by 13m fall in 2G data subs.  Voda-Idea reported combined customer market share of 36% but their data net add market share was only 11% in FY18.

Bharti’s performance superior: Bharti’s net data subs addition of 28.7m was better than that of Idea-Voda. HSD data subs rose by 33.9m, while 2G data subs base fell by 5m, implying that Bharti was not only able to capture 2G upgrades, but could also bring new subs into their fold. With customer market share of 26%, Bharti was able to manage 24% market share in data net subs adds during the year.

Data pack attach rates low, but sees a pickup in Q4: Smartphone device penetration in the subs base for Idea improved from 41% in Mar 2017 to 57.3% in Mar 2018. Effectively, while Idea’s device base grew 43% yoy, the company’s HSD data subs rose only 11% yoy. This growth implies that data pack attach rates (HSD data subs/smartphone devices) only improved from 32% to 36% (that too mostly in Mar 2018). We believe the difference could be a result of non-data pack smartphone subs using Jio as their data sim.

Data subs addition, a key metric for FY19: Total data subs addition would remain a key metric that we would track, considering that companies’ capex is picking up and HSD coverage is expanding, especially in the case of Voda-Idea. The focus on data subs addition is crucial, as the market is shifting towards data and data subs are ARPU accretive. Over last one year incumbents have tried to protect their subscriber base through cheaper tariffs, as their network offerings trailed Jio. However, with increased capex outlay we expect Bharti Airtel to be more aggressive on data subs. But, for Voda-Idea, increasing their share of data net adds will be a challenge as the focus will be divided between delivering cost centric merger synergies and fending off competition from Bharti/Jio.