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UBS Investment Research
India Mobile Sector
D raft NTP 2011 – Promising Roadmap
Broad framework of NTP – 2011
India’s Telecom minister today provided the broad contours of the new telecom
policy (NTP – 2011). The key objectives of the new policy are: 1) have one pan-
India unified license for all services; 2) doing away with roaming charges; 3) make
available additional 500MHz of spectrum by 2020; 4) encourage spectrum sharing,
pooling, and trading (at a later stage); 5) provide infrastructure status to telecom
sector; 6) set up telecom finance commission to facilitate financing in the sector; 7)
increase broadband penetration in India.
UBS View: More positives than negatives
The broad framework of NTP-2011 looks promising. However, it remains to be
seen how government plans to achieve the objective of new policy. The draft
policy did not address the key issues of excess spectrum pricing, and 2G license
renewals. The key positives are: 1) providing infrastructure status to the sector; 2)
allowing spectrum sharing, pooling and trading; 3) provision for more spectrum for
the sector. The immediate key negative for incumbent operators is losing roaming
revenue in short-term (based on our estimate, roaming constitute 4-5% of Bharti’s
and Idea's India mobile revenues and 7-8% of EBITDA). However, we believe
reduced roaming charges are likely to stimulate increase usage.
Remain positive on Indian mobile sector; Bharti is our top pick
Bharti and Idea have underperformed the markets by 9% & 6% respectively in the
last 3 trading sessions on account of negative sentiment surrounding NTP-2011.
We do not see any ground for underperformance due to NTP. We remain positive
on the outlook of the sector given improving pricing environment and regulatory
outlook.
Key objectives of NTP 2011
Increase in rural tele-density from the current level of around 35 to 60 by the
year 2017 and 100 by the year 2020.
Provide affordable and reliable broadband on demand by the year 2015 and
to achieve 175 million broadband connections by the year 2017 and 600
million by the year 2020 at minimum 2 Mbps download speed and making
available higher speeds of at least 100 Mbps on demand.
Provide high speed and high quality broadband access to all village
panchayats through optical fibre by the year 2014 and progressively to all
villages and habitations.
Promote the domestic production of telecommunication equipment to meet
80% Indian telecom sector demand through domestic manufacturing with a
value addition of 65% by the year 2020.
Strive to create One Nation - One License across services and service
areas.
Achieve One Nation - Full Mobile Number Portability and work
towards One Nation - Free Roaming.
Deliver seamless voice, data, multimedia and broadcasting services on
converged networks for enhanced service delivery to provide superior
experience to users.
Facilitate consolidation in the converged telecom service sector while
ensuring sufficient competition.
Ensure adequate availability of spectrum and its allocation in a transparent
manner through market related processes. Make available additional 300
MHz spectrum for IMT services by the year 2017 and another 200 MHz by
2020.
Evolve a framework for financing the sector and streamlining taxes and
levies for long term sustainability of telecom sector.
Key strategies for attaining the objectives
Broadband, rural telephony and universal service obligation fund (USOF)
1 Optical fibre network will be initially laid up to the village panchayat level by funding from the Universal Service Obligation Fund (USOF). Extension of optical fibre
connectivity from village panchayats progressively to all villages and habitations. Access to this Optical Fibre Network will be open and technology neutral
2 To revise the existing broadband download speed of 256 Kbps to 512 Kbps and subsequently to 2 Mbps by 2015 and higher speeds of atleast 100 Mbps thereafter
3 To encourage Fibre To The Home (FTTH) by independent Infrastructure Providers (IPs) with enabling guidelines and policies, favouring fast transformation of cities and
towns into Always Connected society
4 To ensure the availability of sufficient microwave spectrum to meet current and future demand for wireless backhaul especially in prime bands below 12 GHz, in addition
to higher spectrum bands. Unlicensed spectrum will be made available for proliferation of wireless broadband services
Licensing, convergence and value added services
1 To move towards Unified Licence regime in order to exploit the attendant benefits of convergence, for which there is already an in-principle acceptance. A migration path
will also have to be provided for existing licensees to Unified Licence Regime
2 To allow sharing of Networks and delink the licensing of Networks from the delivery of Service to the end users to facilitate faster roll out of services
3 The technology neutral Unified Licenses are envisaged to be in two separate categories
Network Service Operator (NSO) - would be licensed to set up and maintain converged networks
Service Delivery Operator (SDO) - would be licensed to deliver any/ all services
4 To facilitate resale at service level – both wholesale and retail
5 To delink spectrum in respect of all future licences. Spectrum shall be made available at price through market related processes
6 To frame an appropriate Exit Policy for the licensees
7 To review roaming charges with the ultimate objective of removing the roaming charge across the nation
8 To seek TRAI recommendations for new licensing framework, migration of existing licensees to new framework, exit policy etc
Spectrum Management
1 To permit spectrum pooling, sharing and later, trading for optimal and efficient utilisation of spectrum
2 To move existing users of spectrum i.e. Government departments, public sector, private sector and telecom service providers to alternative frequency bands
3
To enact a separate Spectrum Act which inter-alia deals with all issues connected with wireless (spectrum) licences and their terms and conditions including re-farming/
withdrawal of allotted spectrum, spectrum pricing, cancellation or revocation of spectrum licence, exemptions on use of spectrum, spectrum sharing, spectrum trading
etc
Source: DoT; UBS
Statement of Risk
Changes in the competitive and regulatory landscape and technology advances
could have an impact on our estimates and valuations for the operators. We
believe irrational competition among existing operators presents the biggest risk
to our forecasts, ratings, and price targets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Mobile Sector
D raft NTP 2011 – Promising Roadmap
Broad framework of NTP – 2011
India’s Telecom minister today provided the broad contours of the new telecom
policy (NTP – 2011). The key objectives of the new policy are: 1) have one pan-
India unified license for all services; 2) doing away with roaming charges; 3) make
available additional 500MHz of spectrum by 2020; 4) encourage spectrum sharing,
pooling, and trading (at a later stage); 5) provide infrastructure status to telecom
sector; 6) set up telecom finance commission to facilitate financing in the sector; 7)
increase broadband penetration in India.
UBS View: More positives than negatives
The broad framework of NTP-2011 looks promising. However, it remains to be
seen how government plans to achieve the objective of new policy. The draft
policy did not address the key issues of excess spectrum pricing, and 2G license
renewals. The key positives are: 1) providing infrastructure status to the sector; 2)
allowing spectrum sharing, pooling and trading; 3) provision for more spectrum for
the sector. The immediate key negative for incumbent operators is losing roaming
revenue in short-term (based on our estimate, roaming constitute 4-5% of Bharti’s
and Idea's India mobile revenues and 7-8% of EBITDA). However, we believe
reduced roaming charges are likely to stimulate increase usage.
Remain positive on Indian mobile sector; Bharti is our top pick
Bharti and Idea have underperformed the markets by 9% & 6% respectively in the
last 3 trading sessions on account of negative sentiment surrounding NTP-2011.
We do not see any ground for underperformance due to NTP. We remain positive
on the outlook of the sector given improving pricing environment and regulatory
outlook.
Key objectives of NTP 2011
Increase in rural tele-density from the current level of around 35 to 60 by the
year 2017 and 100 by the year 2020.
Provide affordable and reliable broadband on demand by the year 2015 and
to achieve 175 million broadband connections by the year 2017 and 600
million by the year 2020 at minimum 2 Mbps download speed and making
available higher speeds of at least 100 Mbps on demand.
Provide high speed and high quality broadband access to all village
panchayats through optical fibre by the year 2014 and progressively to all
villages and habitations.
Promote the domestic production of telecommunication equipment to meet
80% Indian telecom sector demand through domestic manufacturing with a
value addition of 65% by the year 2020.
Strive to create One Nation - One License across services and service
areas.
Achieve One Nation - Full Mobile Number Portability and work
towards One Nation - Free Roaming.
Deliver seamless voice, data, multimedia and broadcasting services on
converged networks for enhanced service delivery to provide superior
experience to users.
Facilitate consolidation in the converged telecom service sector while
ensuring sufficient competition.
Ensure adequate availability of spectrum and its allocation in a transparent
manner through market related processes. Make available additional 300
MHz spectrum for IMT services by the year 2017 and another 200 MHz by
2020.
Evolve a framework for financing the sector and streamlining taxes and
levies for long term sustainability of telecom sector.
Key strategies for attaining the objectives
Broadband, rural telephony and universal service obligation fund (USOF)
1 Optical fibre network will be initially laid up to the village panchayat level by funding from the Universal Service Obligation Fund (USOF). Extension of optical fibre
connectivity from village panchayats progressively to all villages and habitations. Access to this Optical Fibre Network will be open and technology neutral
2 To revise the existing broadband download speed of 256 Kbps to 512 Kbps and subsequently to 2 Mbps by 2015 and higher speeds of atleast 100 Mbps thereafter
3 To encourage Fibre To The Home (FTTH) by independent Infrastructure Providers (IPs) with enabling guidelines and policies, favouring fast transformation of cities and
towns into Always Connected society
4 To ensure the availability of sufficient microwave spectrum to meet current and future demand for wireless backhaul especially in prime bands below 12 GHz, in addition
to higher spectrum bands. Unlicensed spectrum will be made available for proliferation of wireless broadband services
Licensing, convergence and value added services
1 To move towards Unified Licence regime in order to exploit the attendant benefits of convergence, for which there is already an in-principle acceptance. A migration path
will also have to be provided for existing licensees to Unified Licence Regime
2 To allow sharing of Networks and delink the licensing of Networks from the delivery of Service to the end users to facilitate faster roll out of services
3 The technology neutral Unified Licenses are envisaged to be in two separate categories
Network Service Operator (NSO) - would be licensed to set up and maintain converged networks
Service Delivery Operator (SDO) - would be licensed to deliver any/ all services
4 To facilitate resale at service level – both wholesale and retail
5 To delink spectrum in respect of all future licences. Spectrum shall be made available at price through market related processes
6 To frame an appropriate Exit Policy for the licensees
7 To review roaming charges with the ultimate objective of removing the roaming charge across the nation
8 To seek TRAI recommendations for new licensing framework, migration of existing licensees to new framework, exit policy etc
Spectrum Management
1 To permit spectrum pooling, sharing and later, trading for optimal and efficient utilisation of spectrum
2 To move existing users of spectrum i.e. Government departments, public sector, private sector and telecom service providers to alternative frequency bands
3
To enact a separate Spectrum Act which inter-alia deals with all issues connected with wireless (spectrum) licences and their terms and conditions including re-farming/
withdrawal of allotted spectrum, spectrum pricing, cancellation or revocation of spectrum licence, exemptions on use of spectrum, spectrum sharing, spectrum trading
etc
Source: DoT; UBS
Statement of Risk
Changes in the competitive and regulatory landscape and technology advances
could have an impact on our estimates and valuations for the operators. We
believe irrational competition among existing operators presents the biggest risk
to our forecasts, ratings, and price targets.
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