Jefferies maintains cautious stance on telecom sector with declining ARPU

While maintaining its cautious stand on the telecom sector, financial services company Jefferies said it expect a subdued fourth quarter earnings for 2017-18 coupled with declining average revenue per user (ARPU).

“We expect another subdued quarter for Indian telcos with both Bharti and Idea reporting losses. We expect mobile revenues to decline 3 per cent QoQ (quarter-on-quarter) led by sharp ARPU moderation post the price cuts at the start of the quarter and downgrades in post-paid packs. Cost pressures will also likely increase led by network and content costs leading to 200bps+ QoQ margin drop,” it said in a statement on Monday.

“We maintain our cautious stance on the sector and would watch for commentary on pricing and margins going forward.”

“We expect ARPU to decline 6-7 per cent QoQ, led by price cuts and also addition of low ARPU subs from smaller players. We expect post-paid segment to also see downgrades. We expect further downtick in coming quarters as pack downgrades by consumers continue and competitive intensity remains high,” the report added.

It expects competitive intensity in the sector to remain high as operators will vie for market share.

“We expect ARPU to remain under pressure and cost pressures to also increase. We expect competition to extend to voice-only and post-paid subscribers. Recovery will also likely be gradual from mid-FY20. ARPU increases will require investment in both capacity and content in our view.”