Bracing for Jio

These are tough days for telecom operators. Plenty of bad press with the call-drop issue now threatens to invite financial penalties. This comes right before the launch of Reliance Jio, an operator believed to be capable of changing the game. Business in the meantime is doing well for telecom players. The industry reported the third highest gains in EBITDA (TTM) after the auto and the pharma sectors. Here are two very different companies from the telecom sector that have reported the highest EBITDA gains this year.

Idea Cellular Counting on data

Idea is the country's third largest wireless operator, with a revenue market share of around 17 per cent. It has services in all 22 telecom circles in the country.

In the last 12 months, Idea reported EBITDA growth of 31 per cent (TTM) - much higher than industry leader and giant Bharti Airtel's 8.5 per cent, though the latter's earnings were affected by overseas operations.

Data is turning out to be a big business for telecom operators. Both increased penetration and new mobile launches that offer 3G speeds have fuelled the demand for data. All players recognise this opportunity and are investing in infrastructure to develop both 3G and the next generation 4G throughout the country. The second quarter saw data bringing close to 20 per cent of Idea's revenues - up 560 basis points YoY.

The biggest threat that established players like Idea have ever faced in the country is the upcoming launch of telecom services by the Mukesh Ambani-controlled Reliance Jio. No one really knows what kind of pricing strategies Reliance will indulge in to grab market share from the incumbents.

Bharti Infratel playing the tower game

The high decibel discussion on the call-drop issue and the government's threat of imposing fines is music to the ears of tower operators like Bharti Infratel. It simply means more towers will be needed to cover more area.

Bharti Infratel, an infrastructure subsidiary of Bharti Airtel, owns 42 per cent of Indus Towers. Indus, in turn, is owned by the top three GSM operators: Bharti (holds 42 per cent), Vodafone (also 42 per cent) and Idea (16 per cent). Indus has 86,000 towers and, according to Bharti Infratel, has a market share of 50 per cent in the country.

Bharti Infratel reported EBITDA growth of 15.3 per cent in the last twelve months, the second highest earnings in the sector among listed players. Infratel has net cash of around ₹4,240 crore as of Q2. EBITDA margins stand at 49.64 per cent (TTM), up from 45.53 per cent in the corresponding period last year.

The tower industry is set to enter a high competitive phase in the coming years as operators increase investments in towers in a bid to improve call quality and also to develop a deeper penetration. Reliance Jio's entry threatens to shake up the tower industry as well.