Telecom - No saturation yet; monthly update :: Edelweiss PDF link

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We launch our telecom monthly, which apart from carrying updates on monthly subscriber numbers, will include meeting notes with companies across the telecom value chain. Our inaugural issue kicks off with insights into Vodafone’s strategy based on our meeting with its India CEO and CFO. Our analysis indicates that the sector has not hit saturation as yet. 

 

Hotline: Vodafone India pursuing balanced growth approach

We met Mr. Marten Peiters, CEO, and Mr. Deegan Colman, CFO, Vodafone India. Vodafone’s revenue market share (RMS) rose from 21.2% to 22.4% in the past 12 months. It is focusing on improving yields in circles where it is strong and ramping up volumes in weak circles. Thus, it is reporting a healthy mix of volume and RPM growth. Vodafone expects Bharti to ‘hit back’ as it has lost RMS, but believes the latter will not be disruptive as that will be counterproductive to its own revenue growth and ROCE.

Value-added service: Industry revenue surges 15% YoY

Industry revenue grew 15% YoY in Q3FY12. Contrary to popular perception, every operator (barring RCOM) registered revenue growth despite each following a different strategy, implying that there is room for diverse business models and the industry is still not saturated. Industry ARPU grew 3.9% QoQ after declining for several quarters. The surge was primarily driven by tariff hikes effected in July 2011 by most large operators. Tata Docomo (Tata) churned out about ~4.5mn passive subscribers, which also contributed to the higher ARPU. Growth in data (2G and 3G) revenue too led to increase in ARPU.             

Monthly signal: Bharti ups the ante in subscriber additions

Subscriber numbers reported for January 2012 indicate that Bharti is walking the talk of focusing on market share. It added 1.3mn subscribers compared to the average 0.95mn monthly additions during the past four months. GSM operators (ex-RCOM and Tata) added 8.4mn subscribers, highest in the past seven months.     

Network monitoring: Mixed bag; prefer Bharti

Telecom stocks have posted mixed performance YTD with RCOM out performing due to media reports of an imminent sale of its towerco, Idea performing in line with market despite the Supreme Court order cancelling its licences due to strong Q3FY12 performance and Bharti underperforming due to disappointing Q3FY12. At the current price, we prefer Bharti as risk-reward is favourable.

Telecom - No saturation yet; monthly update