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● Our recent meetings with telcos showed managements’ intention
to raise tariffs in the sector, which hinted at abating competition.
● Mumbai is probably the most competitive telecom market across
22 circles in India, with 12 operators offering services here. So any
tariff changes here would be reflective of the competitive
pressures in the sector as a whole.
● In this context, we surveyed a few mobile retailers in central
Mumbai this week. Our discussions indicated that operators have
started making minor changes (increases) to tariff plans over the
last few weeks.
● The changes are centred on special tariff vouchers, which are
promotional in nature and not regulated.
● In addition, dealer commissions have come down across
operators over the last few weeks—this would not affect RPMs but
have a direct impact on margins.
● We believe rising tariffs and falling sub-acquisition costs should
lead to margin improvement for telcos. We retain our positive
outlook on Bharti and Idea.
Mumbai is probably the most competitive circle in the country, with 12
operators offering services here. Thus, tariff changes would be the
clear indicators of competitive pressures in the sector, in our view.
Figure 1: Mumbai circle market shares
Mumbai market shares Revenue Subscriber
Vodafone 30.7% 16.4%
Bharti 18.0% 9.9%
Reliance 14.0% 21.3%
Tata Tele 13.3% 17.0%
Loop 8.1% 8.8%
Idea 6.9% 6.0%
BSNL/MTNL 3.1% 8.0%
Videocon 2.3% 3.7%
Aircel 1.9% 3.3%
Uninor 1.1% 2.9%
Sistema 0.5% 1.9%
Etisalat 0.1% 0.9%
Source: Company data, Credit Suisse estimates.
Tariff increases have started – in small steps
Our discussions with retailers revealed that almost all operators have
started making minor changes to their tariff plans. We profile some of
them below—all of these changes have come into effect over the last
2–4 weeks (given in order of operator market share).
Vodafone:
Earlier: Special tariff voucher (STV) of Rs37 to reduce long distance
call rate to the states of UP and Bihar to 25p/min.
Now: Same as above, but call rate increased to 30p/min.
Airtel:
Earlier: STV of Rs37 to reduce long distance call rate to the states of
UP and Bihar to 25p/min.
Now: Same as above, but call rate increased to 30p/min.
Idea:
Earlier: STV of Rs22 to reduce long distance call rate to Rs1 per 3 min.
Now: Same 22 STV now changed to 35p/min.
Videocon:
Earlier: STV of Rs17 reduced long distance call rate to 25p/min for an
entire month.
Now: STV of Rs17 gives reduced calling rate of 25p/min only for the
first 10 minutes of the month. After that the call rate rises to 50p/min
We note that while operators make a lot of noise around tariff cuts,
tariff increases happen silently (for obvious reasons). And hence the
recent tariff action has gone largely unreported in the press/media, in
our view.
Dealer commissions going down
We also queried shopkeepers on the commissions they get on mobile
SIM/recharge/voucher sales. Over the last few weeks, almost all
operators seem to have brought down the commissions on the first
recharge (which goes along with the SIM card) – from Rs50 to Rs35
on a sale of Rs110.
In addition, the retailers stocking Uninor and Loop vouchers indicated
that the company’s commission on recharge sales has come down
from 3% to 2.5% over the last one month (bringing these at par with
the commissions offered by the leading operators).
Uninor management comments also hinting at RPM
increase
We recently met Uninor (not-listed) management to get an update on
their strategy. Management explained that they are making changes
to tariffs at two levels: (1) gradually withdrawing the ‘dynamic discount’
plans that give up to 60% discounts. For existing subscribers on these
plans, the effective discount offered (under the network’s discretion) is
being reduced (2) the incentive structure for retailers is being changed,
so as to provide incentive to retailers to push the base plan rather
than STVs (STVs tend to reduce RPM).
These comments go in-line with our recent conversations with Bharti
Airtel and Tata Docomo (not listed) managements—our notes dated
19 June (Nationwide tariff increase by Tata Docomo could signal end
to competition) and 27 June (Management visit note: Competitive
environment continues to improve)—providing us more evidence of an
industry-wide shift in tariff structures
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Our recent meetings with telcos showed managements’ intention
to raise tariffs in the sector, which hinted at abating competition.
● Mumbai is probably the most competitive telecom market across
22 circles in India, with 12 operators offering services here. So any
tariff changes here would be reflective of the competitive
pressures in the sector as a whole.
● In this context, we surveyed a few mobile retailers in central
Mumbai this week. Our discussions indicated that operators have
started making minor changes (increases) to tariff plans over the
last few weeks.
● The changes are centred on special tariff vouchers, which are
promotional in nature and not regulated.
● In addition, dealer commissions have come down across
operators over the last few weeks—this would not affect RPMs but
have a direct impact on margins.
● We believe rising tariffs and falling sub-acquisition costs should
lead to margin improvement for telcos. We retain our positive
outlook on Bharti and Idea.
Mumbai is probably the most competitive circle in the country, with 12
operators offering services here. Thus, tariff changes would be the
clear indicators of competitive pressures in the sector, in our view.
Figure 1: Mumbai circle market shares
Mumbai market shares Revenue Subscriber
Vodafone 30.7% 16.4%
Bharti 18.0% 9.9%
Reliance 14.0% 21.3%
Tata Tele 13.3% 17.0%
Loop 8.1% 8.8%
Idea 6.9% 6.0%
BSNL/MTNL 3.1% 8.0%
Videocon 2.3% 3.7%
Aircel 1.9% 3.3%
Uninor 1.1% 2.9%
Sistema 0.5% 1.9%
Etisalat 0.1% 0.9%
Source: Company data, Credit Suisse estimates.
Tariff increases have started – in small steps
Our discussions with retailers revealed that almost all operators have
started making minor changes to their tariff plans. We profile some of
them below—all of these changes have come into effect over the last
2–4 weeks (given in order of operator market share).
Vodafone:
Earlier: Special tariff voucher (STV) of Rs37 to reduce long distance
call rate to the states of UP and Bihar to 25p/min.
Now: Same as above, but call rate increased to 30p/min.
Airtel:
Earlier: STV of Rs37 to reduce long distance call rate to the states of
UP and Bihar to 25p/min.
Now: Same as above, but call rate increased to 30p/min.
Idea:
Earlier: STV of Rs22 to reduce long distance call rate to Rs1 per 3 min.
Now: Same 22 STV now changed to 35p/min.
Videocon:
Earlier: STV of Rs17 reduced long distance call rate to 25p/min for an
entire month.
Now: STV of Rs17 gives reduced calling rate of 25p/min only for the
first 10 minutes of the month. After that the call rate rises to 50p/min
We note that while operators make a lot of noise around tariff cuts,
tariff increases happen silently (for obvious reasons). And hence the
recent tariff action has gone largely unreported in the press/media, in
our view.
Dealer commissions going down
We also queried shopkeepers on the commissions they get on mobile
SIM/recharge/voucher sales. Over the last few weeks, almost all
operators seem to have brought down the commissions on the first
recharge (which goes along with the SIM card) – from Rs50 to Rs35
on a sale of Rs110.
In addition, the retailers stocking Uninor and Loop vouchers indicated
that the company’s commission on recharge sales has come down
from 3% to 2.5% over the last one month (bringing these at par with
the commissions offered by the leading operators).
Uninor management comments also hinting at RPM
increase
We recently met Uninor (not-listed) management to get an update on
their strategy. Management explained that they are making changes
to tariffs at two levels: (1) gradually withdrawing the ‘dynamic discount’
plans that give up to 60% discounts. For existing subscribers on these
plans, the effective discount offered (under the network’s discretion) is
being reduced (2) the incentive structure for retailers is being changed,
so as to provide incentive to retailers to push the base plan rather
than STVs (STVs tend to reduce RPM).
These comments go in-line with our recent conversations with Bharti
Airtel and Tata Docomo (not listed) managements—our notes dated
19 June (Nationwide tariff increase by Tata Docomo could signal end
to competition) and 27 June (Management visit note: Competitive
environment continues to improve)—providing us more evidence of an
industry-wide shift in tariff structures
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