The earnings before interest tax depreciation and amortisation (EBITDA) of the two rivals will be further propelled by higher tariffs, shift of customers to 4G and a data usage of 12GB-16GB per user per month as more subscribers work remotely, due to the pandemic.
“Jio and Bharti will likely increase their combined revenue market share to 80% (December 2020: around 75%), at the expense of third-placed Vodafone Idea, which will lose 50 million-70 million subscribers in the next 12 months,” said Fitch in a statement on Friday.
These estimates come on the back of recently announced third quarter results which reflect that Jio’s revenue and EBITDA grew by 33% and 50%, respectively, year on year (yoy) in the nine months of FY21, while Bharti Airtel reported Indian mobile revenue and EBITDA growth of 26% and 48%, respectively, during the same period. Vi is yet to report fiscal third quarter results.
Nitin Soni, senior director Corporate for Fitch, estimates the telecom sector to see a 5-10% growth in its average revenue per user (ARPU) in FY22 as 2G and 3G customers gradually move to pricier 4G price plans.
The markets expect a tariff hike from Vi, whose ARPU – a key performance metric – is 30% lower than Airtel’s, and may raise tariffs to improve cash flows. Vi was the first amongst the three private players to raise tariffs in December, 2019.
Fitch expects Airtel will set aside $500 million in FY21 and $1 billion in FY22 towards upfront spectrum investments. This keeping in mind that the telco and Jio and expected to bid for the upcoming spectrum auction for both renewal and acquire spectrum in the sub-1GHz band, which can be used for 5G services.
While Airtel and Jio have now claimed that they have the prowess to launch 5G services, the rating firm does not expect Airtel to launch the next generation services before FY22.
“Sector capex is likely to remain flat in FY22, barring spectrum payments, as both Bharti and Jio front-loaded investments to expand 4G coverage and capacity and built up fibre networks and in-building coverage,” said Fitch. “Bharti could generate small positive free cash flow in FY21, as operating cash generation is likely to rise and will be used to fund flat core capex, excluding one-time spectrum payments and adjusted gross revenue dues”.