Industry analysts see Bharti Airtel’s Rs, 60,000 crores investment plan as a counter to Reliance Jio Infocomm’s entry, even as the rising competition will force other players to ramp up their networks.
Bharti Airtel Monday announced ‘Project Leap’, under which it plans to almost double its network with installation of over 70,000 mobile sites – marking the largest deployment in a single year since the inception of the company.
The company further intends to deploy 160,000 base stations over the next three years.
“We see this announcement as a consequence of rising competitive concerns, with RJio (Reliance Jio) set to enter the sector, and continuation of the rising capex trend that started with aggressive spectrum auction participation over the last couple of years,” Credit Suisse research analysts Sunil Tirumalai and Chunky Shah said in a report.
Bharti has around 150,000 sites for 2G and 62,000 for 3G at present, the report said.
Bharti believes that the technology it is deploying will enable it to offer 50 Mbps speeds from its current 16 Mbps by 2016. In addition, Airtel plans to deploy fiber network to homes and offer up to 100 Mbps download speeds.
As per brokerages, the capital expenditure announcement will make the sector less attractive for investors as there can be further pressure on their finances if government conducts spectrum auction in 2016.
“We believe rising capex makes the sector much less appealing to investors biased toward cash flow and gives the companies lesser room for managing their spectrum purchases in subsequent auctions without increasing leverage,” JP Morgan said in a report.
It further said that Bharti Airtel and the telecom industry are poised to face a number of structural issues such as continued pressure on voice and data realisations due to high competitive intensity and an increase in capex and network opex due to data growth.
“Rising network investment by telecom operators is going in line with our thesis and is positive for Bharti Infratel, in our view.
“The RJio launch will increase competitive intensity, spectrum pain will continue, with more auctions in pipeline,” a Morgan Stanley report by Vinay Jaising and Amruta Pabalkar said.
The JP Morgan report, authored by Viju K George, Amit Sharma and James R Sullivan, sees cannibalisation of voice services by data in the medium to long term.
“Bharti’s aggressive capex program will likely force its competitors (Vodafone/Idea) to follow suit and keep up the investment intensity for fear of being left behind,” the report said. Kotak Institutional Equities Research (KIER) said that the announced capex is around 25 percent higher than it estimated and it clearly a negative surprise in the absence of any outlook on the likely timeline and magnitude of monetisation of these investments.
“Even as Idea management has maintained that it does not expect financial year 2017-18E wireless network capex levels to be materially higher than FY 2016E guided levels of Rs. 6,000-6,500 crores, increase in Bharti’s capex spends may force a recalibration of Idea’s capex plans, in our view,” a KIER report by analysts Rohit Chordia and Abhas Gupta said.