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Indian Telecoms
Impact of 3G roaming pact ban
Final outcome supporting 3G ban will pave way for another
round of 3G auctions
Immediate clarity unlikely, may take six to nine months
Reiterate OW Bharti with a target price of INR475
Event: The Department of Telecoms (DoT) a week ago asked operators to stop their 3G
roaming pact with immediate effect. We note that operators Bharti Airtel, Vodafone and Idea
Cellular had entered roaming pacts on providing pan India 3G services. However post this, the
Telecom Disputes Settlement & Appellate Tribunal (TDSAT) provided respite and allowed
operators to continue services until 3 January 2012. In our view, the possibility of 3G roaming
pacts being disallowed finally is low.
Winners and losers: Key beneficiaries of the 3G roaming pact ban in our view would be the
government and possibly the Reliance Industries’ (RIL) telecom foray. Such a ban allows the
government to raise money by accelerating another round of 3G spectrum auctions. In a
scenario of regional 3G offerings by incumbent operators without support of roaming pacts,
the only operator to provide pan India data services would be RIL. However challenges of TDLTE
technology to provide voice in the medium term do limit upside for RIL. Per our analysis
the roaming pact ban is most negative for Bharti and Vodafone (Not Rated) as they could lose
voice revenues from the high end subscribers in markets where they don’t own 3G spectrum.
As Idea is a new entrant in markets where it does not own 3G spectrum, the impact is not
meaningful.
Operators’ case: Inter-circle roaming was always permissible and by allowing intra-circle
roaming in 2008, the government in a way allowed operators to enter into mutual commercial
interconnect agreements. Furthermore operators suggest that before 3G auctions they had
taken specific clarification from the DoT that roaming policy is applicable on a license basis
and has nothing do with spectrum band (Figure 1). Separately roaming is different from
spectrum sharing or trading as spectrum remains with the roaming provider. Further selling 3G
SIMs in markets where operators don’t have 3G spectrum of their own is not a violation as
there is no generation of new radio access network and new numbering and the spectrum stays
with the operator who owns the 3G spectrum.
Bharti (BHARTI IN, OW, CMP INR343.5, TP INR475): We value Bharti using a blend of
SOTP-based DCF and PE which yields an unchanged target price of INR475. We expect
Bharti to benefit most from the recent tariff hikes and 3G services given its good quality
subscriber base. Key downside risk is spectrum re-farming. Our valuations don’t factor
downside (full impact – INR15) from the roaming pact ban as we see only a low possibility of
the pact being completely disallowed.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Telecoms
Impact of 3G roaming pact ban
Final outcome supporting 3G ban will pave way for another
round of 3G auctions
Immediate clarity unlikely, may take six to nine months
Reiterate OW Bharti with a target price of INR475
Event: The Department of Telecoms (DoT) a week ago asked operators to stop their 3G
roaming pact with immediate effect. We note that operators Bharti Airtel, Vodafone and Idea
Cellular had entered roaming pacts on providing pan India 3G services. However post this, the
Telecom Disputes Settlement & Appellate Tribunal (TDSAT) provided respite and allowed
operators to continue services until 3 January 2012. In our view, the possibility of 3G roaming
pacts being disallowed finally is low.
Winners and losers: Key beneficiaries of the 3G roaming pact ban in our view would be the
government and possibly the Reliance Industries’ (RIL) telecom foray. Such a ban allows the
government to raise money by accelerating another round of 3G spectrum auctions. In a
scenario of regional 3G offerings by incumbent operators without support of roaming pacts,
the only operator to provide pan India data services would be RIL. However challenges of TDLTE
technology to provide voice in the medium term do limit upside for RIL. Per our analysis
the roaming pact ban is most negative for Bharti and Vodafone (Not Rated) as they could lose
voice revenues from the high end subscribers in markets where they don’t own 3G spectrum.
As Idea is a new entrant in markets where it does not own 3G spectrum, the impact is not
meaningful.
Operators’ case: Inter-circle roaming was always permissible and by allowing intra-circle
roaming in 2008, the government in a way allowed operators to enter into mutual commercial
interconnect agreements. Furthermore operators suggest that before 3G auctions they had
taken specific clarification from the DoT that roaming policy is applicable on a license basis
and has nothing do with spectrum band (Figure 1). Separately roaming is different from
spectrum sharing or trading as spectrum remains with the roaming provider. Further selling 3G
SIMs in markets where operators don’t have 3G spectrum of their own is not a violation as
there is no generation of new radio access network and new numbering and the spectrum stays
with the operator who owns the 3G spectrum.
Bharti (BHARTI IN, OW, CMP INR343.5, TP INR475): We value Bharti using a blend of
SOTP-based DCF and PE which yields an unchanged target price of INR475. We expect
Bharti to benefit most from the recent tariff hikes and 3G services given its good quality
subscriber base. Key downside risk is spectrum re-farming. Our valuations don’t factor
downside (full impact – INR15) from the roaming pact ban as we see only a low possibility of
the pact being completely disallowed.
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