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India Equity Research Reports, IPO and Stock News
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Telecom
India
3G rollout – update, thoughts. Private operators excluding Idea and S Tel have
started rolling out commercial 3G launches. Market leaders (Bharti/Vodafone) appear to
be focused on large cities in their leadership circles as part of their launch strategy while
the challengers (RCOM/TTSL) appear to be targeting breadth of coverage to begin with.
Pricing, on expected lines, is at substantial premium to EDGE pricing and we would shy
short of calling the pricing rational. Initial off-take appears reasonable; adoption in the
medium term would hinge on reach and affordability and has potential to disappoint.
3G rollouts, pricing – update
` Rollouts/ off-take – all the private operators with 3G spectrum with the exception of Idea and
S Tel have rolled out commercial 3G networks in select cities. Timing and pace of rollouts vary
and so do the choice of initial breadth of coverage. RCOM and TTSL were first off the blocks
launching their 3G networks in Nov/Dec 2010; Bharti, Vodafone, and Aircel have started
launching in the past one month. Among the private operators TTSL has the widest coverage
with 3G services launched in ~75 cities; RCOM has 32, Bharti 12, Aircel 9, and Vodafone a soft
launch in 11. Exhibit 1 details the city-wise rollouts of various operators. In terms of initial offtake, Bharti has talked about 600,000+ 3G subs in the 12 cities where it has launched.
` Pricing – even as Vodafone is yet to announce its 3G pricing, pricing models of the other
operators appear broadly similar – trial plans with a 1/3/7 days’ validity and monthly plans for
varying usage levels. Monthly plans range from 100 MB/month to 21 GB with price per MB
varying from 10p/MB (for higher usage plans) to Re1/MB. Our discussions with operators
suggest that they expect (and are witnessing) a per-user usage of 300-400 MB with blended
realization of 40-60p/MB. Exhibit 2 details the data pricing plans of various operators.
Key thoughts – testing waters for now, reach & affordability key to medium-term 3G penetration
` Interestingly, though not surprisingly, TTSL and RCOM have focused on breadth while Bharti
and Vodafone appear to be focused on deeper coverage in the top cities of their leadership
circles. Surprisingly though, we have not seen enough aggression from the challengers on 3G
marketing, especially segmented push for churning the leaders’ high-end subs.
` Pricing – even as a section of the Street terms the premium pricing rational based on high
spectrum prices paid, we disagree – two irrationals do not make a rational. We believe pricing
would evolve as companies take 3G beyond the top cities and see the need to expand the 3G
base beyond the initial ‘price-insensitive, 3G at any cost’ segment. Initial premium pricing is
understandable, but for reasons other than spectrum price paid – (1) operators need to test the
market in terms of appetite for the service at high prices, and (2) networks (especially backhaul)
are possibly are not prepared for a potential data surge if 3G services are priced low and see
wide adoption; 3G quality perception is critical to sustaining long-term premium label.
` Reach and affordability critical to medium-term adoption – operators’ plans suggest that they
intend to take 3G to ~top 100 cities in their 3G circles. The top 173 cities in India (the smallest
of these has a population of 230,000) have a population of ~210 mn, ~17% of India’s total
population. Even a 50% 3G penetration in these cities (near-impossible at current prices) would
mean an 8-9% overall 3G penetration. Clearly, a lot of work lies ahead for operators in terms
of expanding their reach and driving affordability without a dilution in 3G quality.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
India
3G rollout – update, thoughts. Private operators excluding Idea and S Tel have
started rolling out commercial 3G launches. Market leaders (Bharti/Vodafone) appear to
be focused on large cities in their leadership circles as part of their launch strategy while
the challengers (RCOM/TTSL) appear to be targeting breadth of coverage to begin with.
Pricing, on expected lines, is at substantial premium to EDGE pricing and we would shy
short of calling the pricing rational. Initial off-take appears reasonable; adoption in the
medium term would hinge on reach and affordability and has potential to disappoint.
3G rollouts, pricing – update
` Rollouts/ off-take – all the private operators with 3G spectrum with the exception of Idea and
S Tel have rolled out commercial 3G networks in select cities. Timing and pace of rollouts vary
and so do the choice of initial breadth of coverage. RCOM and TTSL were first off the blocks
launching their 3G networks in Nov/Dec 2010; Bharti, Vodafone, and Aircel have started
launching in the past one month. Among the private operators TTSL has the widest coverage
with 3G services launched in ~75 cities; RCOM has 32, Bharti 12, Aircel 9, and Vodafone a soft
launch in 11. Exhibit 1 details the city-wise rollouts of various operators. In terms of initial offtake, Bharti has talked about 600,000+ 3G subs in the 12 cities where it has launched.
` Pricing – even as Vodafone is yet to announce its 3G pricing, pricing models of the other
operators appear broadly similar – trial plans with a 1/3/7 days’ validity and monthly plans for
varying usage levels. Monthly plans range from 100 MB/month to 21 GB with price per MB
varying from 10p/MB (for higher usage plans) to Re1/MB. Our discussions with operators
suggest that they expect (and are witnessing) a per-user usage of 300-400 MB with blended
realization of 40-60p/MB. Exhibit 2 details the data pricing plans of various operators.
Key thoughts – testing waters for now, reach & affordability key to medium-term 3G penetration
` Interestingly, though not surprisingly, TTSL and RCOM have focused on breadth while Bharti
and Vodafone appear to be focused on deeper coverage in the top cities of their leadership
circles. Surprisingly though, we have not seen enough aggression from the challengers on 3G
marketing, especially segmented push for churning the leaders’ high-end subs.
` Pricing – even as a section of the Street terms the premium pricing rational based on high
spectrum prices paid, we disagree – two irrationals do not make a rational. We believe pricing
would evolve as companies take 3G beyond the top cities and see the need to expand the 3G
base beyond the initial ‘price-insensitive, 3G at any cost’ segment. Initial premium pricing is
understandable, but for reasons other than spectrum price paid – (1) operators need to test the
market in terms of appetite for the service at high prices, and (2) networks (especially backhaul)
are possibly are not prepared for a potential data surge if 3G services are priced low and see
wide adoption; 3G quality perception is critical to sustaining long-term premium label.
` Reach and affordability critical to medium-term adoption – operators’ plans suggest that they
intend to take 3G to ~top 100 cities in their 3G circles. The top 173 cities in India (the smallest
of these has a population of 230,000) have a population of ~210 mn, ~17% of India’s total
population. Even a 50% 3G penetration in these cities (near-impossible at current prices) would
mean an 8-9% overall 3G penetration. Clearly, a lot of work lies ahead for operators in terms
of expanding their reach and driving affordability without a dilution in 3G quality.
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