Automation may push big 3 telcos’ operating margins up by 500 bps – Economic Times

KOLKATA: Indias top telcos could expand their operating margins by around 500 basis points each over the next three years from automation initiatives like the Aadhaar-based e-KYC process and online recharges, which would lower sales, marketing, distribution and administration costs.

Analysts and industry experts say a combination of automation and ongoing sector consolidation is likely to also help telcos cut subscriber acquisitions costs, which would also lead to a sharp reduction in manpower requirements.

Rajiv Sharma, director & telecoms analyst at brokerage HSBC, expects listed incumbents Bharti Airtel and Idea Cellular to go slow on additional hirings once automation and consolidation picks up.

He expects Indias biggest telcos to each see at least a 500 bps Ebitda margin expansion in the medium term (read: next three years) from a combination of automation initiatives, sector consolidation and simplified tariffs in an era of bundled plans.

Of this estimated 500 bps Ebitda margin expansion, he expects nearly 150 bps to stem from rapid adoption of online recharges, especially with the government driving digital payments.

Badal Bagri, chief finance officer for India & South Asia at Bharti Airtel, had said at the No. 1 phone companys earnings call that customer adds, which are largely based on e-KYC now, had led to substantial cost reduction. But Reliance Jio, owned by Indias richest man, Mukesh Ambani, said the emerging digital ecosystem will eventually drive jobs creation.

While operators will work towards reducing costs with automation and use of digital methodologies, newer opportunities will emerge for value addition to customers leading to creation of more jobs, said a Jio spokesman in a written response to ETs queries.

This movement has already started with recruitment increasing in areas such as digital services, platforms, content and app development, infrastructure and cyber security, network optimisation to digital payment chains.

Sector experts expect mass-market adoption of bundled plans in the 4G era to drive tariff simplicity, which will reduce customer complaints and queries at telco call centres and translate in additional cost savings. Once that happens, telcos need not invest in large teams to manage thousands of tariff plans, which is the case today, said HSBCs Sharma.

According to an HSBC note seen by ET, Idea Cellular has reported sharp savings in its selling & distribution expenses in fiscal quarter ended March 2017 and suggested that 80 per cent of this saving was driven by the e-KYC process.

The countrys third-largest carrier reported a near 13 per cent sequential fall in subscriber acquisition & servicing expenses & advertisement and business promotion expenditure in the March quarter to Rs 825 crore from Rs 948 crore in the quarter to December 2016.

Market leader Bharti Airtel has also reported a near 10 per cent sequential fall in its sales & marketing expenses to Rs 1,693.4 crore in the March quarter. The on-year fall was even steeper at 17 per cent on this metric.

According to HSBC estimates, deployment of the e-KYC process has already led to Idea and Bharti seeing a 21 per cent and 11 per cent quarter-onquarter decline in their sales, marketing and admin costs respectively in the March quarter. Bharti Airtel, Idea Cellular, Vodafone India did not individually respond to ETs emailed queries.

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Automation may push big 3 telcos' operating margins up by 500 bps - Economic Times