Telecom: Will price hike follow capex spike?

4 Jan 2024 , 12:30 PM

With 2023 likely to be the peak year of 5G capex, the focus in 2024 will be on monetisation of investments. The industry has not taken 4G prepaid tariff hikes for over two years; analysts of IIFL Capital Services do not see price increases in H12024, though there is a higher likelihood in H22024. As 5G network fill-factor increases, telcos could eventually monetise by introducing daily data allowances on 5G plans. The next spectrum auction could see limited participation unless use cases for 5G SA pick up in a meaningful way. While analysts of IIFL Capital Services remain bullish on Bharti’s long-term outlook thanks to continued RMS gains (Vi’s fund-raising delay continues) and deleveraging prospects, analysts of IIFL Capital Services await a better entry point post recent rally. 

All eyes on ARPU improvement: 

While Bharti and Vi undertook significant price hikes in entry-level plans during 2023, industry-wide 4G pre-paid tariff hikes were last taken in December 2021. Analysts of IIFL Capital Services rule out price hikes before the general elections in H12024, but H2 could potentially see a headline tariff increase. Introduction of daily data allowances on 5G plans (currently telcos offer unlimited 5G data on plans priced >= Rs239) is a few quarters away, in analysts of IIFL Capital Services view. 

Capex may moderate after FY24 spike: 

JIO is likely to incur >80% of its targeted 5G capex by FY24. Bharti would also complete a significant portion of its 5G capex; any future 5G SA rollout would entail additional capex but would be contingent upon evolution of use cases. The est. capacity of 1400PB/day between the two telcos should be adequate for handling traffic requirements for the next 2-3 years. Analysts of IIFL Capital Services expect capex to moderate for both telcos in FY25 though JIO could still incur significant cash outflows as vendor credit winds down. 2024 could see 5G FWA deployments picking up steam if CPE prices come down meaningfully. 

2024 auctions may see limited participation: 

With Bharti ruling out its need for 700MHz, analysts of IIFL Capital Services expect it to pick up 900MHz in its renewal circles in 2024 auctions. Bharti has to call 75% of Rs210bn rights issue proceeds before Oct-24 which should keep leverage in check, in addition to RMS gains and cost savings. Vi’s delay in raising funds is likely to: 1) result in continued RMS gains for JIO and Bharti; and 2) weigh on Indus’ FCF generation and dividend payouts.