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Telecom: Key drivers in 2011
Advantage Incumbents, Prefer Bharti
We see the current telecom space playing out in favour of incumbents in CY11 backed by market share gains as the new
operators focus on addressing regulatory developments (fallout of 2G scam). Quality network & 3G services are key positives that
would differentiate incumbents from new operators (and could potentially negate the MNP impact)
Robust sub adds, stabilizing Rev/min leading to market share gains for incumbents: We expect strong net sub adds (run rate of ~14-16
mn subs/month) to reach >850 mn wireless subs by end CY11. Further, we expect slower decline in headline tariffs (we forecast ~8-9%
decline in Revenue Per Minute (RPMs) for FY12E against ~18%/12% for FY10/FY11E) as price wars recede
Tower Cos: We expect strong performances from Tower Cos on the back of rising tenancies (~1.75x/1.53x for Bharti/Idea in Q2FY11)
due to 2G network expansion & 3G network roll-outs
MNP: Expect no major impact in the long term: However, it might have the twin effects of increasing churn in the short term (incumbents
could ride on branding, quality network & 3G offerings) and reducing the tariff gap between pre-paid & post-paid (-ve for Bharti &
Vodafone having ~18-22% of revenues each from post-paid)
Any move to unlock value in Tower Cos would be a key +ve trigger along with M&A/consolidation (with promoter lock-in period of
2008 licensees expiring in 2011); however, new TRAI M&A guidelines awaited
Prefer Bharti over Idea in large caps and OnMobile (+24% upside) in the mid cap space. Our estimates are ex. 3G
Key Risks :
Spectrum proposals: Key concerns are TRAI’s recommendations, which if implemented in the current form, would cause a onetime
outgo via (1) higher spectrum price/2G auctions (Impact: Stretching already leveraged B/S’s) and (2) Investments required
due to spectrum re-farming (900 MHz)
Higher Capex for 3G: The investment phase of 3G network roll-out could require higher than estimated Capex
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