India Wireless Policy 2012 - IDFC Sec

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Event

The Cabinet/ Empowered Group of Ministers (EGoM) today approved the New Telecom Policy - 2012 (NTP’12), accepting most of the proposals of the draft policy proposed by the Telecom Regulatory Authority of India (TRAI).

Background

The Indian wireless sector has been beset by frequent regulatory interventions attempting to maximize consumer benefits and, in the process, increasing competition. While NTP’12 does pave the way for investments over the next decade, we believe major negatives for the industry – including a one-time spectrum fee for existing operators, spectrum re-farming and license renewal fees – remain. We note that TRAI is scheduled to furnish a detailed analysis on spectrum pricing to the Department of Telecom (DoT) before the ministerial meeting on 5 June 2012.

(Read our analysis of the impact of various proposals of the draft NTP on Bharti/ Idea in the regulatory section (page 13-16) of our sector report, Indian Wireless – Static Ahead, dated 2 March 2012.)

Modified proposals

VoIP allowed – negative for incumbents

NTP’12 allows Voice over Internet Protocol (VoIP), paving way for 4G operators without 2G/ 3G licenses to offer voice services. The opening up of VoIP will be a big boost for the companies (without voice license) that bagged BWA licenses as they do not need to buy an existing telecom operator to become a full mobile service provider, but can offer voice-over-LTE services.  

We note that the consultation paper on unified licensing (read our event update, “Highlights of TRAI recommendations on Unified Licensing”, 19 April 2012 for details) had proposed to allow VoIP.

‘One India free roaming’ along with full mobile number portability (MNP)

NTP’12 proposes to achieve ‘one nation free roaming’, allowing customers to use their mobile phones across India without having to pay roaming charges. Note that domestic roaming fees account for 2-3% of the revenues of service providers. NTP’12 also recommends the implementation of full mobile number portability, allowing users to retain their existing numbers while changing service providers across circles in the country.

Acceleration in rural teledensity target

NTP’12 proposes to increase rural teledensity from the current level of ~39% to 70% by 2017 and 100% by 2020 (the draft version proposed increasing rural teledensity to 60% by 2017 and 100% by 2020).

Our view

We believe that the regulatory uncertainty would take some more time to be resolved. We maintain our cautious stance on the Indian telecom sector as the core voice business is approaching saturation and the regulatory landscape is set to change in the near term. At current valuations, we continue to prefer Bharti Airtel over Idea Cellular and Reliance Communications. We retain Outperformer on Bharti for its diversified operations, rich spectrum assets across technologies and upside from its Africa operations.