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MOSL: TELECOM-RJio on network expansion spree-Vodafone-Idea rationalization to begin soon

Telecom: RJio on network expansion spree; Vod-Idea rationalization to begin soon; Key takeaways from our discussion with a tower industry expert

 

• A meager 30% of all towers in India's tower industry are fiberized. For RJio, however, this proportion is much higher at ~60%.
• RJio continues adding ~50-60k tenancies annually and this pace is not likely to slow down in the next 2-3 years.
• RJio's own towers are capex-light as it accommodates single tenants. Tower owners do not make much profit in single-tenant towers. Note that opex cost for such towers is high as it is entirely borne by the tenant; sharing arbitrage is not available to RJio.
• Majority of site additions by Bharti is done by loading existing (2G/3G) towers with 4G.
• Rationalization of tenancies by the merged company (Vodafone-Idea) has not started yet. Plans are ready though and should materialize in about a quarter.

 Our view: Capex to remain high over near term; Bharti Infratel to continue feeling pain for next 1-2 years

• Telcos are likely to continue their expansion spree to improve network capability and tackle competition. This will hamper their FCF, though.
• Vodafone-Idea is likely to be worst impacted by the ambitious network integration program.
• We, however, expect Bharti's capex to gradually reduce next fiscal onward, as it has done strong data network rollout over the last three fiscals.
• In our view, once Vodafone-Idea network integration concludes, competition should subside as the three strong players may look at ARPU accretion as an alternative asset monetization option in order to drive profitability.
• Bharti Infratel may see an impact of 15-20% on EBITDA due to the step down in Vodafone-Idea tenancies. Growth should resume once the clean-up is complete.