Telecom: TRAI's new roaming regulations a positive :: Kotak Sec

Sector
Telecom: TRAI's new roaming regulations a positive
` The event - TRAI announces revised roaming regulations
` The nub - the sky has not fallen; it has not become darker, even
` We remain positive on incumbents - 'normalization' theme has begun to
play out

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Telecom
India
TRAI’s new roaming regulations a positive. Even as TRAI has reduced the ceiling
rates applicable to national roaming and brought roaming SMS under regulation (from
forbearance earlier), we see the development as a positive given – (1) that some of the
earlier announcements suggested a potential move towards ‘free roaming’, and (2) the
revised ceiling is well above the prevalent market rates. Largely a no-impact decision.
More importantly, this development is another indicator of increasing rationality in the
sector, both at the regulatory as well as competitive level. We stay positive on Bharti as
well as Idea with a preference for the latter.

The event – TRAI announces revised roaming regulations
The Telecom Regulatory Authority of India (TRAI) announced its revised roaming regulations
(1) reducing the current regulatory ceilings on incoming and outgoing calls while roaming,
(2) bringing roaming outgoing SMS under regulatory ceiling regime from forbearance earlier, and
(3) mandating operators to provide special tariff vouchers that allow subscribers to avail of partially
or fully free roaming in lieu of a fixed payment.
Roaming charge ceiling was reduced – (1) to Re1/minute for local outgoing calls from Rs1.4/min
earlier, (2) to Rs1.5/min for STD outgoing calls from Rs2.4/min earlier, and (3) to Rs0.75/min for
incoming calls from Rs1.75/min earlier. In addition, the authority has prescribed a ceiling of
Re1/SMS for outgoing local and Rs1.5/SMS for outgoing STD SMS; we note that SMS roaming
tariffs were under forbearance earlier. Incoming SMS remains free, as earlier. We note that the last
revision in roaming regulations was done in 2007.
The nub – the sky has not fallen; it has not become darker, even
After all the noise around a move towards free roaming and one-India, one-rate regulatory regime
in the past year or so, the final outcome of the TRAI’s regulatory process on this issue is clearly
fairly benign for the industry, especially the incumbents (who have a higher proportion of their
revenues coming from roaming than challengers). More importantly, the new ceilings are well
above the current blended realizations on various types of calls (local/STD outgoing, incoming) and
SMSs (local/STD outgoing). Financial impact of the new regulation is likely to be immaterial.
At a more philosophical level, the event is significant, in our view – it is a rational outcome after a
lot of noise (political and media) on this issue in the past one year. We call it rational because
(1) the regulator has tried to balance the interests of both the consumers as well as the industry;
the revised regulations are not unduly punishing on an already-struggling industry, and (2) the
regulator followed a consultative process and revised the ceiling based on roaming cost inputs
from all operators in the industry. We continue to believe that roaming premium in India should
come down over a period of time; however, a gradual move down is more practical and this is
how we see this aspect moving.
We remain positive on incumbents – ‘normalization’ theme has begun to play out
Our positive stance on the incumbents (Bharti and Idea) has been based on our expectation of a
slow-but-sure ‘normalization’ of the industry, both on the competitive as well as the regulatory
front. Competitive normalization has started with challengers adjusting their battle zone (network
footprint) to their ability to fight. We expect normalization on the regulatory side as well – nothing
more than a regulatory environment that is not unduly punitive on the industry. We see decent
upside on both Idea and Bharti, if the normalization theme plays out per our expectations.