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India’s telecom minister, Kapil Sibal today announced its draft National
Telecom Policy 2011 (NTP 2011). Key positives include increased
availability of spectrum, spectrum sharing and pooling and a focus on
broadband, while key negatives are removal of roaming and market
determined spectrum pricing. What is also disappointing is that the draft NTP-
2011 is silent on key spectrum and licensing issues which are deferred to a
Spectrum Act, and also on M&A policy. While we are encouraged to see
progress toward clarity on the regulatory front and that the draft was released
within Mr. Sibal’s previously indicated timeframe, several issues remain
pending. The minister will seek responses from industry participants and plans
to announce a final policy by year-end. For full details, please see
http://www.dot.gov.in/NTP-2011/final-10.10.2011.pdf. Key issues below:
NTP-2011 promises more spectrum: NTP 2011 targets making available
500Mhz of spectrum by 2020 (300MHz by 2017, another 200MHz by
2020). We are encouraged to see more spectrum as a key initiative but we
expect a lot of this to be back-ended as we believe existing spectrum users
need to be first moved elsewhere.
One nation = no roaming: NTP 2011 proposes to remove the roaming
charge across the nation. For Bharti, we estimate the impact at 60bp of
consolidated group revenue and ~2pp on EBITDA, while for Idea we
believe this is 1pp of revenue and ~4pp of EBITDA. While telcos generate
~8-9% of their mobile revenue from roaming, we believe only national
roaming, which we believe is the majority of roaming volume but only
~20% of value, is impacted. International roaming stays intact.
Several pending issues: The NTP 2011 proposes to enact a separate
Spectrum Act which will deal with re-farming/withdrawal of allotted
spectrum, spectrum pricing, cancellation or revocation of spectrum license,
exemptions on use of spectrum, spectrum sharing, spectrum trading, etc.
This implies that key issues like [1] spectrum pricing [2] potential payments
for “excess spectrum” [3] payments at time of spectrum renewal [4]
spectrum re-farming [5] license/spectrum fee and more remain outstanding.
The timing of further clarity here remains uncertain but we are hopeful for
further details by year-end before the final NTP 2011 is announced.
We continue to expect Bharti to be relatively better placed to absorb
potential outflows once pending issues are resolved and to be less impacted
from removal on roaming.
The good
Increased availability of spectrum
NTP 2011 targets making available an additional 300MHz of spectrum by 2017 and
another 200MHz by 2020 so a total of 500Mhz by 2020. NTP wants to make
available adequate spectrum in the bands of 450 MHz, 700 MHz, 1800 MHz, 1910
MHz, 2.1 GHz, 2.3 GHz, 2.5 GHz, 3.5 GHz and bands identified by ITU for
commercial mobile services. The government also wants to make more spectrum
available for microwave backhaul in prime bands below 12 Ghz. NTP 2011 proposes
a roadmap for availability of additional spectrum every five years.
This is a welcomed development. We expect the prospect of more spectrum
availability to keep pricing of spectrum via auctions in check and potentially prevent
telcos from bidding up spectrum pricing like we saw during the 3G auction in 2010.
However, we expect the spectrum availability to be back-end loaded in terms of this
timeframe as the government plans to move existing users of spectrum i.e.,
Government departments, public sector, private sector and telecom service providers
to alternative frequency bands or media to make spectrum available for introduction
of new technologies.
Focus on broadband
NTP 2011’s vision is “Broadband on Demand” in both rural and urban areas by
2015. It targets 175m connections by 2017 and 600m by 2020 at a minimum speed of
2Mbps (by 2015) and 100Mbps thereafter. It also targets to provide high-speed
broadband access at the village level via optic fibre by 2014.
Encouraging to us is that the NTP 2011 proposes that the optic fibre network will be
initially laid to the village panchayat level using funding from the Universal Service
Obligation Fund and access to this network will be open. In the past, wireless telcos
have indicated a potential for the government and/or state-owned BSNL to share the
burden of country-wide fibre investment and also allowing network sharing for
wireless operators. The NTP 2011 recognizes the contribution from BSNL/MTNL
broadband penetration.
Rural penetration target of 100% by 2020
The new policy targets an increase in rural penetration from 35% currently to 60% by
2017 and 100% by 2020. It hopes to minimize cost per site in rural areas via
promoting use of low power and renewable energy.
We believe this highlights India’s penetration story is not over and that future growth
will be driven by rural India. We continue to believe that wireless pricing in India
needs to decline to promote penetration. Based on our analysis, we expect wireless
ARPMs to decline again after 3-4 quarters of stable/increasing ARPMs. See our Note
“India Telecoms: The Future of Voice Services” from October 7, 2011 for more
details. We believe the draft NTP 2011 refers to headline penetration as we do not
believe that the addressable market for teledensity in India is 100% of the population.
Spectrum pooling, sharing and trading
NTP 2011 proposes to allow spectrum to be pooled, shared and later traded for
optimal utilization of the resource.
We view the allowance of spectrum sharing as positive for the sector. Spectrum
remains a constrained assed for the telcos and spectrum sharing allows increased
access to this in some cases and also monetization of the asset for others. Note that
TRAI’s stipulation was that spectrum sharing is to be allowed but only if each telco
does not hold more than 4.4/2.5 MHz of spectrum (GSM/CDMA).
Others
Telecom = infrastructure: NTP 2011 targets the recognition of telecom as an
Infrastructure Sector and sees extension of the benefits available to infrastructure
sectors.
Taxes and levies: NTP’s objectives include rationalization of taxes and levies
affecting the sector and to facilitate access to financial resources on favorable terms
Telecom Finance Corporation: A special purpose vehicle to be created to mobilize
and channelize financing for telecom projects in order to facilitate investment in the
telecom sector
The bad
One nation = no roaming charges
A key announcement of the NTP 2011 was One Nation – One License – Free
Roaming. NTP 2011 proposes to review roaming charges with the ultimate objective
of removing the roaming charge across the nation.
DoT’s plan to remove roaming between circles will impact roaming revenue for the
telcos. While telcos generate ~8-9% of their mobile revenue from roaming, we
believe this announcement will impact national roaming only while international
roaming stays intact. According to the latest data from TRAI, GSM telcos generate
8%+ of their mobile revenue from roaming charges. We estimate that of the roaming
revenue, national roaming is 15-20% of value while ILD roaming is the rest.
We estimate that for Bharti this would imply a modest 1-2pp impact to mobile
revenue and a much smaller 70-80bp impact to consolidated group revenue. The
impact on profitability can be ~2pp. Bharti’s roaming charges include: INR 1/minute
for local calls, INR 1.5/min for national calls and INR 1/min for incoming calls. If 22
circles are compressed into 1 circle, the incoming call would be the equivalent of an
in-circle incoming call i.e. free, and the outgoing calls (hitherto local and NLD)
would be priced like regular local calls i.e. INR 0.72/min (based on 1.2p/sec) on
average. Based on usage patterns, this implies a ~60% reduction in roaming tariffs.
Spectrum at market pricing
Spectrum will be made available at pricing determined through market mechanisms.
This to us implies auctions for spectrum in the future. This is likely to warrant high
pricing; however, availability of “sufficient” spectrum will hopefully keep a lid on
telcos’ bidding up the price during the process.
Increased protection of consumer interest
This includes informed consent, transparency, quality of service, tariffs, etc. QoS
parameters to be benchmarked against the best international standards, mandatory for
service providers to have web-based full disclosure of coverage area, legislative
measures to be undertaken for disputes between consumers and service providers.
We believe this could imply a need for telcos to increase their “customer education”
and disclosure initiatives.
Security a priority
NTP calls for service providers to ensure that safe-to-connect devices are inducted
into the networks and that they take measures for ensuring the security of the
network and the data/information flowing/stored in it.
This could imply increased investment requirements in monitoring and inspection of
devices and networks. One respite is that the NTP also calls for sharing of costs
beyond a threshold limit between the Government and the service providers in
implementing security measures.
The STILL awaited
Spectrum Act
The NTP 2011 proposes to enact a separate Spectrum Act which will deal with all
issues connected with wireless spectrum licenses and their terms and conditions
including re-farming/ withdrawal of allotted spectrum, spectrum pricing, cancellation
or revocation of spectrum license, exemptions on use of spectrum, spectrum sharing,
spectrum trading etc.
We are disappointed not to have received any indications on spectrum-related issues
and the timing of this Act is not specified either. This implies that key issues like [1]
spectrum pricing [2] potential payments for “excess spectrum” [3] payments at time
of spectrum renewal [4] spectrum re-farming [5] license/spectrum fee and more
remain outstanding. The timing of further clarity here remains uncertain but we are
hopeful for further details by year-end before the final NTP 2011 is announced
Details on an exit policy for licensees
So far, the NTP envisages framing this policy only. Details of the same are awaited.
NTP stated that it seeks TRAI recommendations for new licensing framework,
migration of existing licensees to new framework, exit policy, etc.
M&A policy
The draft NTP 2011 is disappointingly silent on any M&A policies for the sector. All
it says is an objection is “To establish new licensing regime taking care of the
requirements of level playing field, rollout obligations, policy on merger &
acquisition and non-discriminatory interconnection while ensuring adequate
competition.”
TRAI’s recommendations in May 2010 were not supportive of M&A in the sector in
our view (see below) and we were hopeful for some better M&A norms via the NTP
2011.
Other interesting points
Sibal sees the NTP 2011 as creating an investor friendly environment for
additional investments in the Indian telecom sector with revenue generation
as a secondary role. The latter part is interesting in our view and a move
away from the risk that the government is looking to “milk the sector”.
De-linking of spectrum and license: in line with expectations and TRAI’s
recommendations.
The technology neutral Unified Licenses to be in two separate categories of
network service operator (NSO) and service delivery operator (SDO)
implying to us that entity that is delivering voice services for example, does
not need to set up or maintain the network on which the services run. This in
our view paves the way for MVNOs. We believe this is positive for network
operators who want to monetize spare capacity but it potentially also means
easier entry into the market. The operator (NSO or SDO) will need a
relevant license.
o Communication Network Service Operator (CNSO): licensed to set
up and maintain converged networks capable of delivering various
types of services e.g. Voice, Data, Video, broadcast, IPTV, VAS
etc. in a non-exclusive and non-discriminatory manner.
o Communication Service Delivery Operator (CSDO): licensed to
deliver any/ all services e.g., tele-services (voice, data, video),
internet/broadband, broadcast services, IPTV, Value Added
Service and content delivery services, etc.
Review of the TRAI Act to address regulatory inadequacies: We believe
this could imply more concentration of power with the DoT.
Simplification of policy for Right of Way/Installation of Tower: potentially
positive for Tower Companies like Indus.
Mobile device to serve more than communications i.e. identity proof,
financial transactions and more. This is positive for the development of
mVAS in our view particularly m-commerce and m-banking.
Convergence of services, devices and networks is proposed.
A focus on domestic production of equipment with an aim to meet 80% of
the sector’s demand through domestic manufacturing with a value addition
of 65% by the year 2020. NTP envisages providing preferential market
access for domestically manufactured products including mobile devices
and SIM cards.
To promote use of In-Building Solution (IBS) and Distributed Antenna
System (DAS).
To engage with concerned ministries/ departments like Ministry of Surface
Transport, Ministry of Urban Development, Ministry of Power, Ministry of
Rural Development, Ministry of Railways, State Governments and local
bodies for facilitating development of guidelines for provision of common
service ducts for orderly growth of Telecom Infrastructure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India’s telecom minister, Kapil Sibal today announced its draft National
Telecom Policy 2011 (NTP 2011). Key positives include increased
availability of spectrum, spectrum sharing and pooling and a focus on
broadband, while key negatives are removal of roaming and market
determined spectrum pricing. What is also disappointing is that the draft NTP-
2011 is silent on key spectrum and licensing issues which are deferred to a
Spectrum Act, and also on M&A policy. While we are encouraged to see
progress toward clarity on the regulatory front and that the draft was released
within Mr. Sibal’s previously indicated timeframe, several issues remain
pending. The minister will seek responses from industry participants and plans
to announce a final policy by year-end. For full details, please see
http://www.dot.gov.in/NTP-2011/final-10.10.2011.pdf. Key issues below:
NTP-2011 promises more spectrum: NTP 2011 targets making available
500Mhz of spectrum by 2020 (300MHz by 2017, another 200MHz by
2020). We are encouraged to see more spectrum as a key initiative but we
expect a lot of this to be back-ended as we believe existing spectrum users
need to be first moved elsewhere.
One nation = no roaming: NTP 2011 proposes to remove the roaming
charge across the nation. For Bharti, we estimate the impact at 60bp of
consolidated group revenue and ~2pp on EBITDA, while for Idea we
believe this is 1pp of revenue and ~4pp of EBITDA. While telcos generate
~8-9% of their mobile revenue from roaming, we believe only national
roaming, which we believe is the majority of roaming volume but only
~20% of value, is impacted. International roaming stays intact.
Several pending issues: The NTP 2011 proposes to enact a separate
Spectrum Act which will deal with re-farming/withdrawal of allotted
spectrum, spectrum pricing, cancellation or revocation of spectrum license,
exemptions on use of spectrum, spectrum sharing, spectrum trading, etc.
This implies that key issues like [1] spectrum pricing [2] potential payments
for “excess spectrum” [3] payments at time of spectrum renewal [4]
spectrum re-farming [5] license/spectrum fee and more remain outstanding.
The timing of further clarity here remains uncertain but we are hopeful for
further details by year-end before the final NTP 2011 is announced.
We continue to expect Bharti to be relatively better placed to absorb
potential outflows once pending issues are resolved and to be less impacted
from removal on roaming.
The good
Increased availability of spectrum
NTP 2011 targets making available an additional 300MHz of spectrum by 2017 and
another 200MHz by 2020 so a total of 500Mhz by 2020. NTP wants to make
available adequate spectrum in the bands of 450 MHz, 700 MHz, 1800 MHz, 1910
MHz, 2.1 GHz, 2.3 GHz, 2.5 GHz, 3.5 GHz and bands identified by ITU for
commercial mobile services. The government also wants to make more spectrum
available for microwave backhaul in prime bands below 12 Ghz. NTP 2011 proposes
a roadmap for availability of additional spectrum every five years.
This is a welcomed development. We expect the prospect of more spectrum
availability to keep pricing of spectrum via auctions in check and potentially prevent
telcos from bidding up spectrum pricing like we saw during the 3G auction in 2010.
However, we expect the spectrum availability to be back-end loaded in terms of this
timeframe as the government plans to move existing users of spectrum i.e.,
Government departments, public sector, private sector and telecom service providers
to alternative frequency bands or media to make spectrum available for introduction
of new technologies.
Focus on broadband
NTP 2011’s vision is “Broadband on Demand” in both rural and urban areas by
2015. It targets 175m connections by 2017 and 600m by 2020 at a minimum speed of
2Mbps (by 2015) and 100Mbps thereafter. It also targets to provide high-speed
broadband access at the village level via optic fibre by 2014.
Encouraging to us is that the NTP 2011 proposes that the optic fibre network will be
initially laid to the village panchayat level using funding from the Universal Service
Obligation Fund and access to this network will be open. In the past, wireless telcos
have indicated a potential for the government and/or state-owned BSNL to share the
burden of country-wide fibre investment and also allowing network sharing for
wireless operators. The NTP 2011 recognizes the contribution from BSNL/MTNL
broadband penetration.
Rural penetration target of 100% by 2020
The new policy targets an increase in rural penetration from 35% currently to 60% by
2017 and 100% by 2020. It hopes to minimize cost per site in rural areas via
promoting use of low power and renewable energy.
We believe this highlights India’s penetration story is not over and that future growth
will be driven by rural India. We continue to believe that wireless pricing in India
needs to decline to promote penetration. Based on our analysis, we expect wireless
ARPMs to decline again after 3-4 quarters of stable/increasing ARPMs. See our Note
“India Telecoms: The Future of Voice Services” from October 7, 2011 for more
details. We believe the draft NTP 2011 refers to headline penetration as we do not
believe that the addressable market for teledensity in India is 100% of the population.
Spectrum pooling, sharing and trading
NTP 2011 proposes to allow spectrum to be pooled, shared and later traded for
optimal utilization of the resource.
We view the allowance of spectrum sharing as positive for the sector. Spectrum
remains a constrained assed for the telcos and spectrum sharing allows increased
access to this in some cases and also monetization of the asset for others. Note that
TRAI’s stipulation was that spectrum sharing is to be allowed but only if each telco
does not hold more than 4.4/2.5 MHz of spectrum (GSM/CDMA).
Others
Telecom = infrastructure: NTP 2011 targets the recognition of telecom as an
Infrastructure Sector and sees extension of the benefits available to infrastructure
sectors.
Taxes and levies: NTP’s objectives include rationalization of taxes and levies
affecting the sector and to facilitate access to financial resources on favorable terms
Telecom Finance Corporation: A special purpose vehicle to be created to mobilize
and channelize financing for telecom projects in order to facilitate investment in the
telecom sector
The bad
One nation = no roaming charges
A key announcement of the NTP 2011 was One Nation – One License – Free
Roaming. NTP 2011 proposes to review roaming charges with the ultimate objective
of removing the roaming charge across the nation.
DoT’s plan to remove roaming between circles will impact roaming revenue for the
telcos. While telcos generate ~8-9% of their mobile revenue from roaming, we
believe this announcement will impact national roaming only while international
roaming stays intact. According to the latest data from TRAI, GSM telcos generate
8%+ of their mobile revenue from roaming charges. We estimate that of the roaming
revenue, national roaming is 15-20% of value while ILD roaming is the rest.
We estimate that for Bharti this would imply a modest 1-2pp impact to mobile
revenue and a much smaller 70-80bp impact to consolidated group revenue. The
impact on profitability can be ~2pp. Bharti’s roaming charges include: INR 1/minute
for local calls, INR 1.5/min for national calls and INR 1/min for incoming calls. If 22
circles are compressed into 1 circle, the incoming call would be the equivalent of an
in-circle incoming call i.e. free, and the outgoing calls (hitherto local and NLD)
would be priced like regular local calls i.e. INR 0.72/min (based on 1.2p/sec) on
average. Based on usage patterns, this implies a ~60% reduction in roaming tariffs.
Spectrum at market pricing
Spectrum will be made available at pricing determined through market mechanisms.
This to us implies auctions for spectrum in the future. This is likely to warrant high
pricing; however, availability of “sufficient” spectrum will hopefully keep a lid on
telcos’ bidding up the price during the process.
Increased protection of consumer interest
This includes informed consent, transparency, quality of service, tariffs, etc. QoS
parameters to be benchmarked against the best international standards, mandatory for
service providers to have web-based full disclosure of coverage area, legislative
measures to be undertaken for disputes between consumers and service providers.
We believe this could imply a need for telcos to increase their “customer education”
and disclosure initiatives.
Security a priority
NTP calls for service providers to ensure that safe-to-connect devices are inducted
into the networks and that they take measures for ensuring the security of the
network and the data/information flowing/stored in it.
This could imply increased investment requirements in monitoring and inspection of
devices and networks. One respite is that the NTP also calls for sharing of costs
beyond a threshold limit between the Government and the service providers in
implementing security measures.
The STILL awaited
Spectrum Act
The NTP 2011 proposes to enact a separate Spectrum Act which will deal with all
issues connected with wireless spectrum licenses and their terms and conditions
including re-farming/ withdrawal of allotted spectrum, spectrum pricing, cancellation
or revocation of spectrum license, exemptions on use of spectrum, spectrum sharing,
spectrum trading etc.
We are disappointed not to have received any indications on spectrum-related issues
and the timing of this Act is not specified either. This implies that key issues like [1]
spectrum pricing [2] potential payments for “excess spectrum” [3] payments at time
of spectrum renewal [4] spectrum re-farming [5] license/spectrum fee and more
remain outstanding. The timing of further clarity here remains uncertain but we are
hopeful for further details by year-end before the final NTP 2011 is announced
Details on an exit policy for licensees
So far, the NTP envisages framing this policy only. Details of the same are awaited.
NTP stated that it seeks TRAI recommendations for new licensing framework,
migration of existing licensees to new framework, exit policy, etc.
M&A policy
The draft NTP 2011 is disappointingly silent on any M&A policies for the sector. All
it says is an objection is “To establish new licensing regime taking care of the
requirements of level playing field, rollout obligations, policy on merger &
acquisition and non-discriminatory interconnection while ensuring adequate
competition.”
TRAI’s recommendations in May 2010 were not supportive of M&A in the sector in
our view (see below) and we were hopeful for some better M&A norms via the NTP
2011.
Other interesting points
Sibal sees the NTP 2011 as creating an investor friendly environment for
additional investments in the Indian telecom sector with revenue generation
as a secondary role. The latter part is interesting in our view and a move
away from the risk that the government is looking to “milk the sector”.
De-linking of spectrum and license: in line with expectations and TRAI’s
recommendations.
The technology neutral Unified Licenses to be in two separate categories of
network service operator (NSO) and service delivery operator (SDO)
implying to us that entity that is delivering voice services for example, does
not need to set up or maintain the network on which the services run. This in
our view paves the way for MVNOs. We believe this is positive for network
operators who want to monetize spare capacity but it potentially also means
easier entry into the market. The operator (NSO or SDO) will need a
relevant license.
o Communication Network Service Operator (CNSO): licensed to set
up and maintain converged networks capable of delivering various
types of services e.g. Voice, Data, Video, broadcast, IPTV, VAS
etc. in a non-exclusive and non-discriminatory manner.
o Communication Service Delivery Operator (CSDO): licensed to
deliver any/ all services e.g., tele-services (voice, data, video),
internet/broadband, broadcast services, IPTV, Value Added
Service and content delivery services, etc.
Review of the TRAI Act to address regulatory inadequacies: We believe
this could imply more concentration of power with the DoT.
Simplification of policy for Right of Way/Installation of Tower: potentially
positive for Tower Companies like Indus.
Mobile device to serve more than communications i.e. identity proof,
financial transactions and more. This is positive for the development of
mVAS in our view particularly m-commerce and m-banking.
Convergence of services, devices and networks is proposed.
A focus on domestic production of equipment with an aim to meet 80% of
the sector’s demand through domestic manufacturing with a value addition
of 65% by the year 2020. NTP envisages providing preferential market
access for domestically manufactured products including mobile devices
and SIM cards.
To promote use of In-Building Solution (IBS) and Distributed Antenna
System (DAS).
To engage with concerned ministries/ departments like Ministry of Surface
Transport, Ministry of Urban Development, Ministry of Power, Ministry of
Rural Development, Ministry of Railways, State Governments and local
bodies for facilitating development of guidelines for provision of common
service ducts for orderly growth of Telecom Infrastructure.
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