Kotak Sec: Telecom India: Interesting ‘active’ subs data released by TRAI.

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Telecom
India
Interesting ‘active’ subs data released by TRAI. TRAI’s Sep-10 subs data release
provides the first-ever look at operator-wise and country-wide ‘active’ (VLR) subscribers.
Key highlights – (1) of the 688 mn reported subs across the industry, VLR subs totaled
483 mn at end-Sep 2010 – roughly implies an active subs penetration of ~41% versus
reported headline number of 58%, and (2) there is substantial variation in active subs
% across operators – Bharti and Idea top the charts at ~90% each, RCOM is at ~67%,
Vodafone at a surprisingly low 75%, and other operators in the 30-60% range.




VLR counts all subs connected to the wireless network at a point in time
Before we delve into the reported data and discuss our interpretation of the same, it is important
to understand the difference between Home Location Register (HLR) and Visitor Location Register
(VLR). Essentially, every operator maintains two subs databases/records – HLR is the record
containing details of all the subscribers authorized to use the network of an operator (this is the
number regularly reported by the operators), while VLR is the record of all the subscribers
connected to the operator’s network (including other operators’ roaming subs) at a specific point
in time. Very crudely, VLR represents the base of ‘active’ subs at a given point in time.

TRAI VLR data release – key data points
For the first time, TRAI has released operator-wise and industry-wide VLR data. Exhibit 1 gives the
details. Key data points – (1) on a pan-India basis, VLR subs totaled 483 mn at end-Sep 2010,
roughly 70% of the reported total of 688 mn by operators, and (2) Bharti had the highest ratio of
VLR subs to reported subs at 89.3%, Idea was at ~88%, Vodafone a surprisingly low 75%, RCOM
at ~67% (roughly equal for GSM and CDMA), TTSL at ~45%, and BSNL and Aircel at ~59% each.


No conclusions, several interpretations
Without drawing any conclusions from the data, we discuss some interpretations of the numbers.
􀁠 As emphasized above, VLR subs data is a crude proxy of the active subs in the system. Actual
active subs will likely be a tad higher than this on account of the fact that this is a point-intime
measure and may exclude active subs that are not connected to the network at that
instance (no network coverage, switched off, second SIM, etc.). We do note that the VLR ratio
of new operators like Uninor gets impacted because of initial low network coverage.
􀁠 The high VLR ratio for Bharti and Idea demonstrates several things, the most important one
being superior quality subs reporting and churn norms of the two companies. We are surprised
by the VLR ratio of Vodafone on this account.
􀁠 The VLR ratio differential between Bharti/Idea and the rest also suggests – (1) superior network
coverage of these operators – essentially, most of the subs in the HLR do not face coverage
issues and are connected to the network (and hence are in the VLR) most of the time, and
(2) higher primary SIM status – always on, permanent incoming number; the secondary SIM (of
other operators) is possibly activated only to make outgoing calls, at certain points in a day.
􀁠 On the flip side, the VLR-ratio adjusted underlying ARPU (on active subs) for other operators is
much higher than their reported numbers suggest. Essentially, the ARPU differential of a Bharti
versus others in the industry may not be as high as is normally perceived.


􀁠 The above also plays into the reported subs market share versus revenue market share
differential for various operators. For example, on a reported basis, Bharti’s GR revenue
market share of 31.6% (for the Sep 2010 quarter) is significantly higher than its reported
subs market share of 20.8% at end-Sep 2010, implying a substantial positive ARPU
differential for Bharti versus the industry. However, on an active subs basis, Bharti’s
underlying subs market share of 26.5% is not as meaningfully different from its revenue
market share of 31.6%.
􀁠 Even adjusted for the fact that actual active subs base is a tad higher than what VLR ratio
suggests, the underlying unique user penetration in the country is likely at best around
the 45% mark. Even as this data can suggest high future growth potential, it can also be
looked at as representing a potential demographic/income cap on unique user
penetration in the country. It also suggests that the actual individual (not per SIM) usage
and ARPU is significantly higher than the reported numbers.