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Bharti Airtel (BRTI.BO) Rs318.30
Equity Research
Purchase of Qualcomm’s license? Complements 3G/LTE footprint
News
As per WSJ (March 17), Bharti is likely to buy Qualcomm’s India
broadband wireless licenses for US$ 1.2 bn. We note that Qualcomm has
licenses in Delhi, Mumbai, Kerala and Haryana and paid US$ 1.1 bn in Jun
2010 during BWA (Broadband Wireless Access) spectrum auctions. There
are no comments from Bharti on this possible transaction till now.
Analysis
If true, 1) Bharti would gain access to the lucrative high ARPU Mumbai and
Delhi circles (RIL owned Infotel is the only LTE (Long Term Evolution)
competitor in these circles); 2) Bharti will have acquired the license almost
at the same cost as Qualcomm acquired it for in Jun ‘10 but at a lower risk
as now there would be better visibility on the roadmap of LTE ; 3) Given
Qualcomm has always expressed interest in selling its licenses (as per its
press releases), we believe Bharti’s move to acquire licenses would keep
any potential new competitor out. Internationally, historical precedence
indicates that incumbents have generally been aggressive in acquiring any
spectrum up for sale, in order to strengthen their dominance and keep
potential competitors away. From a Qualcomm perspective (as indicated in
its press releases and media articles like Business Standard, Oct-29 ‘10) its
intention to promote LTE over WiMax has been achieved and therefore it
makes logical sense to exit the market (as it is not an operator).
Implications
Assuming this transaction goes ahead and is fully debt funded at Bharti’s
average cost of debt, we estimate it would reduce EPS by 1.6%/2.4% for
FY12/FY13E. However, it would open up an opportunity to tap the nascent
zero-penetrated “tablet market”. We believe LTE in India will complement
3G and will be used by operators to target the “tablet market”. We note
that media articles (Business Standard; Feb 16) mentioned that Infotel (the
other LTE operator) has zeroed in on seven-inch and 10–inch Androidbased
tablets with prices starting at Rs 8,000 and data plans likely to start
as low as Rs 1,000 for three to six months. We reiterate Buy (on CL) and TP.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel (BRTI.BO) Rs318.30
Equity Research
Purchase of Qualcomm’s license? Complements 3G/LTE footprint
News
As per WSJ (March 17), Bharti is likely to buy Qualcomm’s India
broadband wireless licenses for US$ 1.2 bn. We note that Qualcomm has
licenses in Delhi, Mumbai, Kerala and Haryana and paid US$ 1.1 bn in Jun
2010 during BWA (Broadband Wireless Access) spectrum auctions. There
are no comments from Bharti on this possible transaction till now.
Analysis
If true, 1) Bharti would gain access to the lucrative high ARPU Mumbai and
Delhi circles (RIL owned Infotel is the only LTE (Long Term Evolution)
competitor in these circles); 2) Bharti will have acquired the license almost
at the same cost as Qualcomm acquired it for in Jun ‘10 but at a lower risk
as now there would be better visibility on the roadmap of LTE ; 3) Given
Qualcomm has always expressed interest in selling its licenses (as per its
press releases), we believe Bharti’s move to acquire licenses would keep
any potential new competitor out. Internationally, historical precedence
indicates that incumbents have generally been aggressive in acquiring any
spectrum up for sale, in order to strengthen their dominance and keep
potential competitors away. From a Qualcomm perspective (as indicated in
its press releases and media articles like Business Standard, Oct-29 ‘10) its
intention to promote LTE over WiMax has been achieved and therefore it
makes logical sense to exit the market (as it is not an operator).
Assuming this transaction goes ahead and is fully debt funded at Bharti’s
average cost of debt, we estimate it would reduce EPS by 1.6%/2.4% for
FY12/FY13E. However, it would open up an opportunity to tap the nascent
zero-penetrated “tablet market”. We believe LTE in India will complement
3G and will be used by operators to target the “tablet market”. We note
that media articles (Business Standard; Feb 16) mentioned that Infotel (the
other LTE operator) has zeroed in on seven-inch and 10–inch Androidbased
tablets with prices starting at Rs 8,000 and data plans likely to start
as low as Rs 1,000 for three to six months. We reiterate Buy (on CL) and TP.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
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