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GSM plus data revenues now contributes 71% of Reliance Communication’s (RCOM) telecom revenues, up from 65.4% a year ago, the company CEO (Wireless) Gurdeep Singh disclosed during its earnings conference call for the quarter ended December 31, 2013 (Q3-FY14).
When an analyst questioned as to why the non-voice revenue contribution has remained stagnant for the past 3-4 quarters despite a sharp increase in data traffic, Singh mentions this was due to two reasons – firstly, the decline in its VAS contribution due to TRAI regulations and secondly, its 3G tariff were reduced to 2G rates last year due to which there was an initial dip in revenues. However, the company has apparently crossed that stage now and hopes to see better traction in the future.
He reiterated that data is going to be the next growth area for operators and in the next 2-3 years, one can expect data revenue growth similar to the voice revenue growth we saw few years back. 3G growth will be driven by the emergence of lower priced 3G handsets not only from global brands but also from local companies who are launching 3G phones in sub Rs 5,000 price point.
While voice business is still the bread and butter for the industry and contributed over 70% of total revenues in fiscal year 2013, it is slowly entering into a maturity phase, he added.
Data Tariffs to Increase in Future
RCOM had reduced its 3G tariff by 50% in July 2013 to reduce the barrier for adoption of 3G service and to improve the low 3G adoption rate among existing smartphone users and the low utilization of 3G networks. However, RCOM later increased the rates of 3G data plans by around 26% and reduced the data volumes on select packages by about 60% in December 2013.
Singh says this was done primarily to remain mark-to-market on 2G data prices as most operators have increased 2G data prices in the country and hinted that one can expect further hikes in data rates in the future.
RCOM believes that India is not ready for speed-based pricing yet, due to which it is currently looking to offer a single Internet plan for 2G and 3G. Once a need for speed arises among consumers, RCOM plans to move into tiered pricing.
Other notes from RCOM’s Q3-FY14 earnings conference call
– 2014 Is Year of Consolidation: RCOM expects 2014 will be the year when real consolidation in the industry will begin and there will only be around 5 pan-India players as small operators will not be able to sustain costs and will become consolidation targets.
This will lead to further tariff hardening and pricing power returning to pan-India operators. High spectrum costs will also lead to rise in tariffs which will lead to improved margins and better cash flow generation. The tariffs are expected to further increase by 5-6% during the year, as the company plans to pass on inflationary and other cost pressures onto its subscribers.
– Focus on Quality additions and profitable minutes: The company’s current focus is on quality subscriber acquisition which has led to a moderate net additions per quarter for the last 3-4 quarters as compared to higher addition rates earlier. RCOM says this has not only helped the company in bringing down its acquisition cost but has also improved its churn and increased the contribution from new additions.
There is also a focus on paid and profitable minutes and RCOM will continue to remove unprofitable minutes from the network, be it free or discounted minutes or preloaded minutes at acquisition time.
RCOM says it continues to face some tariff pressures from regional and semi-regional players in the market although it’s quite limited and localized. It’s also doubtful these pressures will continue since these regional players have apparently started increasing its tariff as well, as they are already congested and are now left with an option to either expand the number of base stations or acquire more spectrum, which will not work out with lower tariffs.
– 2G ICR agreements: RCOM has added more than 9,000 sites for the quarter, through 2G ICR agreements inked with multiple operators last year, to improve its network coverage and quality.
Read – RCOM Q3-FY14 Transcript
Our Reliance Communications Q3-FY14 Earnings Coverage
– RCOM’s Gurdeep Singh on whether Reliance Jio is a partner or competition
– Reliance Communications Renewing Focus On Its CDMA Services
– RCOM extends its EMI-like device tie-ups to Lumia & HTC Devices; Plans for more
– Reliance Communications Had 11.1M 3G, 36.2M Mobile Internet Connections At End Of Q3-FY14
– RCOM Non-Voice Revenues Flat For Q3-FY14