India Telecoms report by Anand Rathi

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India Telecoms - Tele Scan Vol. 19/10

n       Key topics: DoT moots merger of circles; subs disclosure norms; 3G

n       DoT moots merger of service areas for roaming purposes. A high level DoT-panel has recommended merger of the existing 22 circles either into a pan-India circle or four zones. If implemented, the merger would reduce instances of ‘roaming’ outside the home zone/circle, leading to negative impact on telco revenues. National roaming accounts for an estimated 5-6% of GSM segment revenues (6-7% for Bharti/Vodafone/Idea). Assuming that ‘regional’ roaming accounts for 60% of roaming call volumes, we estimate revenues of GSM leaders to be impacted 1.5-2.0% (EBITDA impact would be much higher, at 4-5%). Notably, roaming tariffs are at over 100% premium to home-zone tariffs (Fig 2). We believe that the DoT proposal is at a preliminary stage and is likely to face stiff resistance from incumbent GSM telcos.

n       TRAI may start reporting ‘active’ subscriber base also, as per media reports. According to DoT data (quoted byFinancial Express, 15 Oct), India’s ‘active’ wireless sub base stands at 450m, which is 35% lower than the reported sub base of 706m. This implies 40% wireless penetration in terms of unique subscribers as against ~60% in China. ‘Active’ sub data is extracted from the Visitor Location Register (VLR) vis-à-vis the reported SIM data, which is collected from the Home Location Register.

n       Tata- Docomo to launch 3G services around Diwali. Tata-Docomo’s new TV commercials indicate 3G launch in the first week of November. We believe this is unlikely to result in any first-mover advantage, as the scale of the launch is not likely to be significant. Nonetheless, an early launch would help Docomo grab some headlines and create a buzz around its brand during the festive season, as other major telcos (Bharti, Voda, Idea) are unlikely to launch 3G before Dec ’10. All 3G spectrum winners have already placed equipment orders and are in the process of deploying the network.

n       Investment views. Bharti stock price is down 12% from its recent high of ~`373 as of end-Sep (vs. a flat Sensex), which provides an attractive entry point for investors with a 12-15 month investment horizon. Idea’s stock was flat in the same period. We continue to prefer Bharti over Idea. Tulip Telecom (Hold) may see a near-term rally, given good fundamentals and excessive valuation discount to large-caps (35% on FY11e EV/EBITDA) post the recent underperformance. We retain Sell on RCom, given delay in balance sheet de-leveraging and unattractive valuations.