New Dawn in Indian Telecom: Facebook, Microsoft, Google, Amazon showing interest in investment

In the last few weeks, we saw furry of action in Indian Telecom sector as the news of investments and speculations for future interests kept pouring in about billions of dollars of investment from tech giants like Facebook, Microsoft, Google, Amazon, powerful institutional investors as well as sovereign funds. The deleveraging of telecom firms and availability of cash as well as future leverage appetite will fuel new growth in telecom sector and clear the way for “Fiber to the Home (FTTH)” & 5G investments. 

Why are marquee investors making a beeline to invest in Indian Telecom sector ? Due to COVID 19, the world economy is looking for serious contractions and there are few avenues of growth left to invest. Indian telecom sector remains one such opportunity on multiple fronts;

1. Subscriber Growth
2. Data consumption growth
3. Increase in profitability
4. Entertainment contents
5. Educational Content
6. iOT platforms
7. Payment Gateway
8. E-Commerce platforms/Retail
9. Newly opened agriculture Market
10. Attractive valuation

Subscriber Growth: Though we are nearing saturation of telecom subscribers in Metros and other big cities, the rural subscription remains less than 60%. The graph on the left depicts the teledensity in India as of end of Jan 2020. It also needs to be noted that out of 19 telecom circles, 9 circles have less than national average tele-density and remain home for over 50% of India’s population. This disparity provides headroom for growth as connectivity is proving to be an enabler for the poor and makes a difference in their economic wellbeing.

Data Consumption Growth: The growth in wireless data usage per subscriber remains substantial, on top of the healthy growth in subscriber numbers. With regional language content becoming widely available and consumed by masses, it will only add up to the appetite for data. The data growth is driven by multiple factors like,

•  Increasing preference for video calling over voice calls
• Trends towards work from home (WFH)
• Multiple social media platforms and other apps
• Democratization of tools for content creation
• Democratization of tools for content monetization
• Rise in narrowly focused content for small audience
• Rise is hyper local content creation & consumption
•  Rise is regional language content creation & consumption

These trends have been fuelling data consumption growth to the bottom of pyramid, where the headroom for growth as of now remains unbounded by subscriber numbers as well as data per subscriber.

Increase in profitability: In the month of December, Reliance Jio announced a substantial increase in price of voice and data services, which was followed by Airtel and Idea-Vodafone. The price inelasticity shown by the market has been remarkable. As shown in the graph, it has increased the 28 days validity plans of the telecom services from 14% to significant 46.75%. This shows the maturity of the telecom market and the fact that the adoption phase fueled by rock-bottom prices is nearing its end. The consumers now appreciate the value of data and are willing to pay for the data services and this assists better profitability of the telecom players. A profitable market is what investors look for and the increase in profitability of major players helps their cause.

Entertainment Content: Global trends in telecom remains a “Triple Play offering”, where Video, Data and Voice are offered as a bundle and same is increasingly becoming true as Jio TV, Airtel TV and & Vodafone Play are offering generic and platform specific contents not only on phone but also on the “Smart TV”. India has about 250 million households and only 19.08 million wired connection and 0.6 million fixed wireless subscribers. That’s less than 10% penetration level, a little deeper analysis will show that this also includes connections to places of business, unfortunately data on the same is not publicly available so let’s ignore that fact for now. Increasingly we will see “Fiber To Home” offering giving access to all the voice, data and entertainment needs served by one fiber connection. This has already been offered by the telecom players in specific pockets and will become a norm going forward. The top 20% of Indian consumers will become its customer in the near future, based on their disposable income as well as data and entertainment needs. The example of bundled offering by JioFiber remains on the left. We are seeing bundling and action by many players other than Jio as well, Amazon Prime, Airtel TV etc..

Educational Content: The rise in adoption of education online is increasing from the primary school onwards and there are multiple players offering quality content at affordable prices. The COVID-19 pandemic has increased the adoption rates many fold as many schools are forced to deliver online and video lectures instead of regular classes. For undergraduate level, graduate level and continuing education, the trend worldwide is increasingly adoption of online educational content. This trend will only increase in the future and result in increase of data usage worldwide.

iOT Platforms: The world is moving towards smart devices and sensors as we try to automate our work and increase efficiency. Starting from agriculture to automobiles, home appliances to fitness monitors, asset location tracking to asset health monitoring, the data collection is omnipresent and contributing significantly to increase in productivity and waste reduction. This trend will see a surge with Intel projecting 200 billion connected objects by 2020 and all of which demands data, as India marches towards progress these devices will become a considerable source of revenue for the telecom service providers.

Payment Gateways: The world is moving towards digital transactions and mobile payments are increasing. The institutionalizing of UPI gate Reserve Bank of India has made it easier for all licensed players to facilitate payments. There is a rush to get a pie of this market led by "Ali Pay" in China as a leader and others like “WeChat Pay”, “Apple Pay”, “Google Pay” chasing the market. In India “Jio Pay”, “Airtel payment bank”, PayTM and others are trying to get a hold of this market. These payment platforms are not only a source of potential income as a payment facilitator but also a rich source of data which can be analyzed for consumer insights, credit rating, consumption habits etc. the usage is limited only by one's imagination.

E-Commerse Platform: It seems like e-Commerce and Retail are getting married in India uniquely as both “Jio Retail” and “Amazon India” are trying to tie-up e-commerce with local convenience shops. The idea is a cross between Japan’s 7-11 model of a cluster of convenience shops in proximity and fast inventory churns backed by frequent replenishments and traditional e-commerce. The availability of multiple convenience stores in every locality provides a ready network which is being tapped by the two giants as distribution hubs, using a convenience of technology to collect orders and economy of scale to offer best prices. Implementation of this idea remains in its infancy and we expect teething troubles. Barring them, it has a potential to solve the pain and high cost of individual delivery without compromising on the usual advantages of e-commerce offering.

Newly Open Agriculture Market: The agriculture market in India is up for a serious disruption as it has been freed from the shackles of Draconian market laws. There is now a serious need for an agriculture market aggregator in India backed by logistics to ensure that a farmer is connected to the consumer seamlessly. The challenge of “Farm to Fork” needs ingenuity, capital, logistical solution and seamless connectivity to solve and time for the same looks ripe as most technologies are available. The telecom operators already have franchises in most rural markets, which can be easily used for signing up farmers and organizing logistics. Once again this is more of a possibility than a real opportunity, but potentially a big one for sure. 

Attractive Valuation: Indian telecom sector had an accumulated debt in the order of almost 100% over the years and there has been a clamouring to deleverage in the telecom sector for some time. The preferential share allotments were readily oversubscribed in recent times, signalling markets appetite for these shares. When we couple the same with the dearth of opportunity in the market for excellent investment and surplus of cash with tech giants as big investment firms, the Indian telecom sector looks like a godsend opportunity.

At the time of writing this article, Reliance Jio platform has raised about US$13 billion worth of investment and reportedly remains in enviable position to choose between Microsoft & Google for next round of investment.

Bharti Airtel has raised US$1.1 billion and speculations remains rife that it’s in talks with Amazon, however Bharti Airtel has denied the same and Amazon has refused to comment.

There are speculations that Idea-Vodafone is in talks with Google, once again the news is not confirmed yet. 

The fact that three large private players, Reliance Jio, Bharti Airtel and Vodafone-Idea have a subscriber market share of 32.56%, 28.38% and 28.45% respectively and the government-owned BSNL/MTNL has 10.61% at the end of January 2020, points towards good standing of all players in the market. These players have their own strength & weakness, strong holds and areas for improvement, which is good for the market. 

Interesting times ahead for Indian telecom players, Indian consumers, telecom equipment providers (specifically 5G network equipment providers) as well as service providers like HDD contractors. In this rather tough market, this is one shinning ray of hope for all. 

Data Reference: 

TELECOM REGULATORY AUTHORITY OF INDIA 

1.    Consultation Paper on Tariff Issues of Telecom Services   17th of December 2019

2.    Subscription Report:, 8th May, 2020 ; Press Release No.29/2020