March 8, 2018

Telecommunications Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Telecommunications Industry Analysis

Must know facts:

  • Mobile data consumption in India surpassed the combined usage of the US and China in 2017, a year that saw the landscape of the telecom sector being altered with bitter competition and setting-in of the much awaited consolidation phase.
  • India is currently the 2nd largest telecommunication market and has the 3rd highest number of internet users in the world.
  • Tele-density (defined as the number of telephone connections for every 100 individuals) in India, increased from 17.9 in FY07 to 92.59 in FY17.

 

Influencing Factors for price change:

  1. Telecom industry is best judged when benchmarked against – ‘S&P BSE Telecom’ indices.
  2. News that propel growth for new age Telecom – With Internet of Things, Artificial Intelligence, drones and robots promising to fuel future demand for high-speed data.
  3. Government initiatives such as – Government of India is working to digitally connect the rural and remote regions in the country and has decided a new affordable tariff structure with the principle of more you use, less you pay. The changes will soon be reflected in tariff changes by service providers in the country.
  4. Data by TRAI (Telecom Regulatory Authority of India) – indicating telecom subscriber base & market share of various top players in the market.

 

Understanding the Industry:

In what could be considered as a transformational year for the Indian telecom sector, 2017 saw telcos consolidate like never before, leaving just three major players in the market by the end of the year. It only proved that telecom sector has become a money guzzler where only those with deep pockets can survive.

While the mighty house of Tatas gifted away their telecom business to Bharti Airtel, billionaire Mukesh Ambani’s Reliance Jio acquired spectrum, mobile-phone towers and fibre assets of his brother Anil Ambani’s Reliance Communications Ltd. On the other hand, Vodafone India and Idea decided to merge to become the country’s largest operator. Airtel bought Telenor’s ailing Indian subsidiary, Telenor India, as also Tikona Digital Network.

India is currently the world’s second-largest telecommunications market with a subscriber base of 1.05 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG). The country is the fourth largest app economy in the world.

But truly, what a year it has been! The Indian telecom sector, — second only to China with its massive subscriber base of 1.05 billion users — saw severe bloodletting for most part of the year as free voice calls and dirt cheap data ushered in by Reliance Jio reined in tariffs, cheering consumers. With consolidation, the telcos will get the benefit of synergy amongst their operations and the overall cost of operations are likely to come down, leading to increased margins.

 

Estimated Market Size:

The mobile industry is expected to create a total economic value of Rs 14 trillion (US$ 217.37 billion) by the year 2020. It would generate around 3 million direct job opportunities and 2 million indirect jobs during this period. According to report by Canaly, India has become the second largest smartphone market in the world as shipments increased 23 per cent year-on-year in Q3 2017, to reach more than 40 million units.

 

Road Ahead:

The telcos will move to innovative business models to counter the falling revenues. Converged services with voice telephony, wired and wireless broadband, and television services along with content, Internet of Things, financial payments, are likely to help in better revenue streams.  Another area to watch out would access of satellite phone services for consumers especially during air travel. India’s telecom sector is also expected to make significant progress for deployment of 5G services in 2018.

With Internet of Things, Artificial Intelligence, drones and robots promising to fuel future demand for high-speed data, it may just be a matter of time before the industry — with fewer players — returns to its trademark growth.

 

Top Stocks in the industry:

Telecom Services based stocks- Bharti Airtel, Idea Cellular, MTNL, Reliance Communication.

Telecom Equipment based stocks – Bharti Infratel, ITI, Honeywell Autom, GTL Infra.. 

(Please note above stocks are not recommendations, they are purely for information purpose only)

 

Information Source / References: IBEF, article on NDTV gadjets, TRAI, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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