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India Equity Research Reports, IPO and Stock News
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Investing to stand still
Meetings with CLSA U Speaker Prakash Bajpai highlighted 2G telcos
withdrawing promotions, leading to better revenue per minute. In 3G,
the 5MHz/operator spectrum is inadequate and greater capacity can
only be provided by LTE networks. LTE may not be disruptive, but
operators risk having to make continued investments just to stand
still, with regulatory charges and needing to complete their spectrum
footprint. Bharti is best placed to fund investment and to benefit from
sector consolidation: it remains our sector pick.
Improved realisation per minute for 2G.
In 2G it will be difficult to increase per subscriber MoU (minutes of use) but
network traffic will grow, led by semi-urban and rural areas. With several players
weakened due to financial and regulatory challenges, and with tariff-reduction-led
traffic growth showing inelasticity, operators are withdrawing freebies and
promotions, leading to better realisation per minute.
Exasperation with 5MHz 3G spectrum.
Even as 3G services are gathering momentum, applications and VAS, not dataconnectivity offerings, are leading the 3G telcos’ push for new services. This is
due to the fact that 5MHz spectrum (in the 2.1GHz range) per operator in each
circle is woefully little for servicing the data and broadband opportunity. For
operators, 3G spectrum seemed a must to stay in contention as a top mobile operator
in any given market/circle. Now with 3G, operators are providing services which are
scanty but useful and apps which will take VAS revenue to a higher level.
LTE a likely aberration but not disruptive
While 3G will play its part in introducing Indian consumers to the world of mobile
internet and will deliver interesting VAS applications, customers will need much
greater capacity as they become prolific internet users: only 4G LTE networks can
meet this requirement. Consequently while 2G and 3G in India came at the late
stages of their lifecycle, LTE is likely to be an unusual case: India will see LTETDD deployment starting at the end of the year, with continuous rollouts.
Collaborations a compulsion
At the same time LTE is likely to leverage existing mass-scale proliferation
of 2G/3G ecosystem by using software-defined radio (SDR) as well as
multimode chipsets, which will allow seamless transfer among all these
networks. This will also allow traffic-choked 2G/3G networks to pass data or
IP traffic to 4G LTE or 4G Wi-Fi networks. Therefore, various types of
collaborations among networks will emerge. Also 4G operator may not be
eager to offer voice services other than limited VoIP-embedded in
applications, hence LTE may not be a disruptive force for 2G businesses.
Re-farming of 900MHz can cause business disruption
However re-farming can cause serious business disruption for incumbent
operators. If 900MHz is taken away operator’s will require a complete
redesign/recast of the network RF architecture including more base stations
and increase in capex. Consequently operators in order not to disturb RF
network will be willing to pay additional to retain the 900MHz spectrum.
Risks of investment in status quo for spectrum.
Impending 2G consolidation and mobile broadband (with a mere 1% penetration
in a market with just 36m fixed-line users and 4% PC ownership) are exciting
opportunities. However given the non-judicious allocation of spectrum there lurks
a risk that operators will have to make large investments just to maintain the
status quo, including: regulatory payment for spectrum allocations beyond
6.2MHz; renewal of 2G licences; and even re-farming. This is on top of the
compulsion to complete their 3G footprint and maybe even buy 4G spectrum. In
the worst case, we estimate an investment requirement of US$4.5-6.6bn (Rs54-
79/share) for Bharti Airtel and US$4.7bn (Rs64/share) for Idea Cellular. Bharti is
better placed to fund its investment needs (with US$6.2bn FCF in the next three
years) and benefits from impending consolidation: it remains our sector pick.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investing to stand still
Meetings with CLSA U Speaker Prakash Bajpai highlighted 2G telcos
withdrawing promotions, leading to better revenue per minute. In 3G,
the 5MHz/operator spectrum is inadequate and greater capacity can
only be provided by LTE networks. LTE may not be disruptive, but
operators risk having to make continued investments just to stand
still, with regulatory charges and needing to complete their spectrum
footprint. Bharti is best placed to fund investment and to benefit from
sector consolidation: it remains our sector pick.
Improved realisation per minute for 2G.
In 2G it will be difficult to increase per subscriber MoU (minutes of use) but
network traffic will grow, led by semi-urban and rural areas. With several players
weakened due to financial and regulatory challenges, and with tariff-reduction-led
traffic growth showing inelasticity, operators are withdrawing freebies and
promotions, leading to better realisation per minute.
Exasperation with 5MHz 3G spectrum.
Even as 3G services are gathering momentum, applications and VAS, not dataconnectivity offerings, are leading the 3G telcos’ push for new services. This is
due to the fact that 5MHz spectrum (in the 2.1GHz range) per operator in each
circle is woefully little for servicing the data and broadband opportunity. For
operators, 3G spectrum seemed a must to stay in contention as a top mobile operator
in any given market/circle. Now with 3G, operators are providing services which are
scanty but useful and apps which will take VAS revenue to a higher level.
LTE a likely aberration but not disruptive
While 3G will play its part in introducing Indian consumers to the world of mobile
internet and will deliver interesting VAS applications, customers will need much
greater capacity as they become prolific internet users: only 4G LTE networks can
meet this requirement. Consequently while 2G and 3G in India came at the late
stages of their lifecycle, LTE is likely to be an unusual case: India will see LTETDD deployment starting at the end of the year, with continuous rollouts.
Collaborations a compulsion
At the same time LTE is likely to leverage existing mass-scale proliferation
of 2G/3G ecosystem by using software-defined radio (SDR) as well as
multimode chipsets, which will allow seamless transfer among all these
networks. This will also allow traffic-choked 2G/3G networks to pass data or
IP traffic to 4G LTE or 4G Wi-Fi networks. Therefore, various types of
collaborations among networks will emerge. Also 4G operator may not be
eager to offer voice services other than limited VoIP-embedded in
applications, hence LTE may not be a disruptive force for 2G businesses.
Re-farming of 900MHz can cause business disruption
However re-farming can cause serious business disruption for incumbent
operators. If 900MHz is taken away operator’s will require a complete
redesign/recast of the network RF architecture including more base stations
and increase in capex. Consequently operators in order not to disturb RF
network will be willing to pay additional to retain the 900MHz spectrum.
Risks of investment in status quo for spectrum.
Impending 2G consolidation and mobile broadband (with a mere 1% penetration
in a market with just 36m fixed-line users and 4% PC ownership) are exciting
opportunities. However given the non-judicious allocation of spectrum there lurks
a risk that operators will have to make large investments just to maintain the
status quo, including: regulatory payment for spectrum allocations beyond
6.2MHz; renewal of 2G licences; and even re-farming. This is on top of the
compulsion to complete their 3G footprint and maybe even buy 4G spectrum. In
the worst case, we estimate an investment requirement of US$4.5-6.6bn (Rs54-
79/share) for Bharti Airtel and US$4.7bn (Rs64/share) for Idea Cellular. Bharti is
better placed to fund its investment needs (with US$6.2bn FCF in the next three
years) and benefits from impending consolidation: it remains our sector pick.
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