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Telecom
India
Interesting data point on India wireless non-voice revenue split from Bharti.
Bharti’s 2QFY12 report provides a break-up of its India wireless non-voice revenues
between SMS and non-SMS for the first time since March 2010 quarter. Reported data
surprised us on a couple of counts – (1) flat non-SMS revenues in Sep 2011 versus
March 2009 levels, and (2) non-SMS revenue trajectory markedly different from that
reported by Vodafone India. Data revenues form a part of the non-SMS bucket and the
weak growth trajectory in this bucket has come as a negative surprise to us.
Bharti’s India wireless non-voice break-up challenges some perceptions
Bharti’s 2QFY12 report provided the split of its India wireless non-voice revenues between
SMS and non-SMS for the first time since the Mar 2010 quarter. This data is important given
that potential data opportunity in India is among the few key factors driving the investment thesis
for India wireless stocks. The absence of specific data points on current ‘pure data’ revenues of
Indian mobile operators makes trends in non-voice revenues the only consistently available metric
to track this factor. However, non-voice revenues also include contributions from SMS and other
2G VAS in addition to ‘pure data’. Hence, any data point that provides a more granular break-up
of the non-voice bucket is important. In this light, we present our interpretation of the disclosed
SMS/non-SMS split. First, the data (Exhibit 1) –
Non-voice revenues contributed 14.5% to Bharti’s India wireless revenues for 2QFY12, up from
9.3% in Mar 2009 and 11.8% in Mar 2010
SMS contribution has increased to 9.5% of revenues in Sep 2011 from 5.7% in Mar 2010 and
3.7% in Mar 2009. Non-SMS contribution has declined to 5% of revenues from 6.1% in Mar
2010 and 5.6% in Mar 2009
In absolute terms, SMS revenues are up 3X since Mar 2009 and 1.9X since Mar 2010, while
non-SMS revenues are flat versus Mar 2009 and 4% lower than Mar 2010 levels.
Some inferences
SMS contribution to revenues is substantially higher than perceived. We (and possibly the
Street) have believed that growth in non-SMS components had been driving the increase in
non-voice proportion of revenues (+270 bps since Mar 2010, the last quarter for which Bharti
had reported the split). This view has been based on interactions with various managements
over the past few quarters, in which they have talked of a pick-up in 2G data.
More important, the poor non-SMS revenue trajectory is clearly at odds with our
assumption (and the Street’s) of robust data growth in the industry over the past few
quarters. We do note that ‘pure data’ revenues are only a part of this non-SMS, non-voice
component of revenues. It also includes contribution from other 2G VAS services like CRBT, IVR
etc. Now, it is entirely plausible that these streams have seen a sharp decline and data has
actually grown smartly. However, we still find the flat non-SMS, non-voice revenues since
March 2009 surprising and at variance with the purported ‘India data story’.
Delving on the above a little further, let’s assume that Bharti had zero ‘pure data’
revenues in the Mar 2009 quarter. Essentially, let’s assume that 100% of its reported
non-SMS non-voice revenues of Rs4.6 bn for the Mar 2009 quarter was pure 2G VAS. If
we further assume a 50% decline in such VAS revenues in absolute terms since Mar
2009, it would imply pure data revenues of Rs2.4 bn (Rs4.7 bn total reported less Rs2.3
bn from 2G VAS) in the Sep 2011 quarter. We also note that Bharti had 3G ICR revenues
from Vodafone and Idea in Sep 2011, which presumably were reported as a part of non-
SMS non-voice revenues. Even considering these ICR revenues as zero, the Rs2.4 bn
‘pure data’ revenues for the Sep 2011 quarter on a base of 31 mn mobile internet
users (24 mn 2G + 7 mn 3G, as disclosed by the company) suggests data usage (in
value terms) of just about Rs26/month per data user (much lower on overall subs
basis, of course). Adjusted for ICR revenues, data usage per month would be even
lower.
We do note that Bharti includes revenues from some of its services like ‘facebook on
SMS’ and ‘twitter on SMS’ as SMS revenues. These can technically be seen as data
revenues; however, we believe these would not be meaningful.
We are not suggesting that a higher proportion of SMS within the non-voice pie
is necessarily good or bad. Most telcos have hiked tariffs on SMS as well in recent times
and that should aid protection of this revenues stream even if there is a negative impact
of some of the recent TRAI recommendations on tele-marketing, per-day SMS limit, etc.
We would like to simply highlight the ‘poorer-than-perceived’ data growth (in
value terms) trajectory suggested by Bharti’s split disclosure. This does have
implications for data growth (3G as well as 2G) assumptions built into our
forecasts and those of the Street.
Vodafone data suggests a much healthier data revenue trajectory
We also note that Vodafone’s performance on non-voice non-SMS revenues appears to be
at odds with that of Bharti (see Exhibit 2). Vodafone’s non-voice, non-SMS revenues have
grown 2X from Mar 2009 quarter to Jun 2011 quarter (Vodafone is yet to report its Sep
2011 quarter financials); Bharti’s Sep 2011 revenues from this stream are flat versus Mar
2009 levels, as discussed above. Vodafone has shown a solid 14% CQGR on this revenue
stream for the past four quarters and its Jun 2011 non-voice, non-SMS revenues were 35%
higher than Bharti’s Sep 2011 revenues from this stream. We have yet to find an explanation
for the contrarian trends reported by the two leading industry players – the quality of the
two companies’ subscriber bases, at least excluding Vodafone’s 7 new circles, should not be
too different, in our view.
Does this data point demand a review of our assumptions/view? Not yet, but we
are watching this trend closely
Unlike a few sections of the Street, we have been a little cautious on the timing of strong
data uplift in the industry. Our forecasts assume a strong pick-up starting 2HFY13E. Even as
the non-SMS revenue growth trajectory for Bharti is somewhat disappointing, we
would wait for a quarter or two before reviewing our stance. We also hope that (1)
Bharti continues to disclose the SMS/non-SMS split of non-voice revenues from here,
and (2) other listed players start reporting this break-up. Further details of the split
of non-SMS revenues between ‘pure data’ and ‘other VAS’ would be illuminating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
India
Interesting data point on India wireless non-voice revenue split from Bharti.
Bharti’s 2QFY12 report provides a break-up of its India wireless non-voice revenues
between SMS and non-SMS for the first time since March 2010 quarter. Reported data
surprised us on a couple of counts – (1) flat non-SMS revenues in Sep 2011 versus
March 2009 levels, and (2) non-SMS revenue trajectory markedly different from that
reported by Vodafone India. Data revenues form a part of the non-SMS bucket and the
weak growth trajectory in this bucket has come as a negative surprise to us.
Bharti’s India wireless non-voice break-up challenges some perceptions
Bharti’s 2QFY12 report provided the split of its India wireless non-voice revenues between
SMS and non-SMS for the first time since the Mar 2010 quarter. This data is important given
that potential data opportunity in India is among the few key factors driving the investment thesis
for India wireless stocks. The absence of specific data points on current ‘pure data’ revenues of
Indian mobile operators makes trends in non-voice revenues the only consistently available metric
to track this factor. However, non-voice revenues also include contributions from SMS and other
2G VAS in addition to ‘pure data’. Hence, any data point that provides a more granular break-up
of the non-voice bucket is important. In this light, we present our interpretation of the disclosed
SMS/non-SMS split. First, the data (Exhibit 1) –
Non-voice revenues contributed 14.5% to Bharti’s India wireless revenues for 2QFY12, up from
9.3% in Mar 2009 and 11.8% in Mar 2010
SMS contribution has increased to 9.5% of revenues in Sep 2011 from 5.7% in Mar 2010 and
3.7% in Mar 2009. Non-SMS contribution has declined to 5% of revenues from 6.1% in Mar
2010 and 5.6% in Mar 2009
In absolute terms, SMS revenues are up 3X since Mar 2009 and 1.9X since Mar 2010, while
non-SMS revenues are flat versus Mar 2009 and 4% lower than Mar 2010 levels.
Some inferences
SMS contribution to revenues is substantially higher than perceived. We (and possibly the
Street) have believed that growth in non-SMS components had been driving the increase in
non-voice proportion of revenues (+270 bps since Mar 2010, the last quarter for which Bharti
had reported the split). This view has been based on interactions with various managements
over the past few quarters, in which they have talked of a pick-up in 2G data.
More important, the poor non-SMS revenue trajectory is clearly at odds with our
assumption (and the Street’s) of robust data growth in the industry over the past few
quarters. We do note that ‘pure data’ revenues are only a part of this non-SMS, non-voice
component of revenues. It also includes contribution from other 2G VAS services like CRBT, IVR
etc. Now, it is entirely plausible that these streams have seen a sharp decline and data has
actually grown smartly. However, we still find the flat non-SMS, non-voice revenues since
March 2009 surprising and at variance with the purported ‘India data story’.
Delving on the above a little further, let’s assume that Bharti had zero ‘pure data’
revenues in the Mar 2009 quarter. Essentially, let’s assume that 100% of its reported
non-SMS non-voice revenues of Rs4.6 bn for the Mar 2009 quarter was pure 2G VAS. If
we further assume a 50% decline in such VAS revenues in absolute terms since Mar
2009, it would imply pure data revenues of Rs2.4 bn (Rs4.7 bn total reported less Rs2.3
bn from 2G VAS) in the Sep 2011 quarter. We also note that Bharti had 3G ICR revenues
from Vodafone and Idea in Sep 2011, which presumably were reported as a part of non-
SMS non-voice revenues. Even considering these ICR revenues as zero, the Rs2.4 bn
‘pure data’ revenues for the Sep 2011 quarter on a base of 31 mn mobile internet
users (24 mn 2G + 7 mn 3G, as disclosed by the company) suggests data usage (in
value terms) of just about Rs26/month per data user (much lower on overall subs
basis, of course). Adjusted for ICR revenues, data usage per month would be even
lower.
We do note that Bharti includes revenues from some of its services like ‘facebook on
SMS’ and ‘twitter on SMS’ as SMS revenues. These can technically be seen as data
revenues; however, we believe these would not be meaningful.
We are not suggesting that a higher proportion of SMS within the non-voice pie
is necessarily good or bad. Most telcos have hiked tariffs on SMS as well in recent times
and that should aid protection of this revenues stream even if there is a negative impact
of some of the recent TRAI recommendations on tele-marketing, per-day SMS limit, etc.
We would like to simply highlight the ‘poorer-than-perceived’ data growth (in
value terms) trajectory suggested by Bharti’s split disclosure. This does have
implications for data growth (3G as well as 2G) assumptions built into our
forecasts and those of the Street.
Vodafone data suggests a much healthier data revenue trajectory
We also note that Vodafone’s performance on non-voice non-SMS revenues appears to be
at odds with that of Bharti (see Exhibit 2). Vodafone’s non-voice, non-SMS revenues have
grown 2X from Mar 2009 quarter to Jun 2011 quarter (Vodafone is yet to report its Sep
2011 quarter financials); Bharti’s Sep 2011 revenues from this stream are flat versus Mar
2009 levels, as discussed above. Vodafone has shown a solid 14% CQGR on this revenue
stream for the past four quarters and its Jun 2011 non-voice, non-SMS revenues were 35%
higher than Bharti’s Sep 2011 revenues from this stream. We have yet to find an explanation
for the contrarian trends reported by the two leading industry players – the quality of the
two companies’ subscriber bases, at least excluding Vodafone’s 7 new circles, should not be
too different, in our view.
Does this data point demand a review of our assumptions/view? Not yet, but we
are watching this trend closely
Unlike a few sections of the Street, we have been a little cautious on the timing of strong
data uplift in the industry. Our forecasts assume a strong pick-up starting 2HFY13E. Even as
the non-SMS revenue growth trajectory for Bharti is somewhat disappointing, we
would wait for a quarter or two before reviewing our stance. We also hope that (1)
Bharti continues to disclose the SMS/non-SMS split of non-voice revenues from here,
and (2) other listed players start reporting this break-up. Further details of the split
of non-SMS revenues between ‘pure data’ and ‘other VAS’ would be illuminating.
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