While the Supreme Court's latest ruling on Aadhaar has all telcos worried about increased customer acquisition costs as well as onboarding time for new subscribers, analysts say that industry disrupter Reliance Jio Infocomm may be impacted more than the incumbents Airtel and Vodafone Idea.
According to The Economic Times, the Mukesh Ambani-owned telco has been adding many more subscribers every month compared to its rivals. So the apex court order disallowing telcos from using the faster Aadhaar-based verification system could slow the pace of subscriber additions significantly, potentially delaying Jio's plan of acquiring a 50% revenue market share.
According to data released by the telecom department, Jio added 11.78 million customers in July against Airtel's 313,000, Vodafone India's 609,000 and Idea Cellular's 5,489. (Vodafone and Idea concluded the sector's biggest merger last month).
"Jio's gross customer additions could decline in the coming months as the verification process will henceforth be a more cumbersome affair, which could also be a turn-off for potential new users who've been lately used to instant connectivity under the Aadhaar-based enrolment mechanism," a foreign brokerage analyst told the daily.
With Aadhaar, the customer acquisition cost was pegged at about Rs 30 per new subscriber. But if verification goes back to old ways, the telcos will have to send agents to every household for physical checks - possibly making multiple trips - so the cost is expected to jump to Rs 250-300. So Jio's consistently higher monthly additions translate to higher verification costs compared to its rivals.
Moreover, as Crisil pointed out to the daily, it was unclear whether physical re-verification of subscribers already verified through e-KYC via Aadhaar would be needed. Such a requirement would further push up costs for all telcos.Furthermore, telcos' rural expansion drive - where growth potential exists - may take a hit because a slower verification process will not help attract subscribers.
All this is pretty bad news for the sector that has been battered by price wars over the past two years that eroded profitability and forced consolidation in the space. The Cellular Operators Association of India's (COAI) annual report for FY18 noted that the telecom operators are in "severe financial distress" with a cumulative debt of Rs 7.7 lakh crore and revenue under Rs 2.5 lakh crore.
The silver lining here is that Crisil does not expect the increased verification costs to have any significant impact on telcos' operating profit margins since such costs account for less than 1% of their revenues. "Verification expenses per new subscriber addition has declined at a CAGR [compounded annual growth rate] of 10-15% over the past three-four fiscals, and currently is at Rs 120," Hetal Gandhi, director (research) at Crisil India, told the daily.