We retain our Attractive view on Indian telcos and
continue to highlight Idea Cellular as our top pick:
This follows the incumbents’ recent cuts in 2G data
tariffs for pay-per-use plans. We note that average data
volumes have grown by more than 20% QoQ in the last
2-3 quarters while data tariffs have stabilized.
Despite the rate cuts… Press reports indicate that
Vodafone has slashed data prices by 80% and Airtel and
Idea have cut data usage rates by 90% in the last week
(Economic Times, June 18-20, 2013). These rate cuts
apply to pay-per-use plans, applicable to introductory
data users and data plan users, after initial data
allowances have been exhausted.
…we believe that the data growth story will continue
to evolve: The rate cuts will help enhance data volume
growth, particularly among pre-paid users, who will find
the pay-per-use data plans more affordable, in our view.
We highlight that the pay-per-use 2G data rates are
much higher than the implied data plan rates: For
example, one needs to only pay Rs125 per month for
1GB 2G data usage, which implies a rate of Rs0.13/MB.
The new pay-per-use 2G data rates are 1-2 paise per
10KB or Rs1-2/MB. Hence, despite the 80-90% cut in
these rates, they still remain as high as ~16x the implied
2G data plan rates (Exhibit 2). Yet they contribute <5 p="">of data revenues.
We do not see any major impact from the tariff cut
on the revenues of the telco operators: Heavy data
users are likely to subscribe to a data plan, based on
their usage patterns. Thus, a very small proportion of
data users would actually end up paying on the basis of
the higher pay-per-use rate.
We maintain our current estimate of overall ARPM
growth of 6-7% over the next four quarters: This is
driven by 9-20% growth in non-voice ARPMs and 5%
growth in voice ARPMs.
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continue to highlight Idea Cellular as our top pick:
This follows the incumbents’ recent cuts in 2G data
tariffs for pay-per-use plans. We note that average data
volumes have grown by more than 20% QoQ in the last
2-3 quarters while data tariffs have stabilized.
Despite the rate cuts… Press reports indicate that
Vodafone has slashed data prices by 80% and Airtel and
Idea have cut data usage rates by 90% in the last week
(Economic Times, June 18-20, 2013). These rate cuts
apply to pay-per-use plans, applicable to introductory
data users and data plan users, after initial data
allowances have been exhausted.
…we believe that the data growth story will continue
to evolve: The rate cuts will help enhance data volume
growth, particularly among pre-paid users, who will find
the pay-per-use data plans more affordable, in our view.
We highlight that the pay-per-use 2G data rates are
much higher than the implied data plan rates: For
example, one needs to only pay Rs125 per month for
1GB 2G data usage, which implies a rate of Rs0.13/MB.
The new pay-per-use 2G data rates are 1-2 paise per
10KB or Rs1-2/MB. Hence, despite the 80-90% cut in
these rates, they still remain as high as ~16x the implied
2G data plan rates (Exhibit 2). Yet they contribute <5 p="">of data revenues.
We do not see any major impact from the tariff cut
on the revenues of the telco operators: Heavy data
users are likely to subscribe to a data plan, based on
their usage patterns. Thus, a very small proportion of
data users would actually end up paying on the basis of
the higher pay-per-use rate.
We maintain our current estimate of overall ARPM
growth of 6-7% over the next four quarters: This is
driven by 9-20% growth in non-voice ARPMs and 5%
growth in voice ARPMs.
There is also a press article suggesting that Bharti Airtel
has cut 4G charges by 31% (Economic Times, June 24,
2013). We note that Bharti has launched 4G services in very
limited areas, including Kolkota, Bangalore, Pune and
Chandigarh, where the 4G data plan prices have been lowered
to bring them in line with the 3G data plans. Though Bharti is
the only company that has launched 4G services in the country,
we believe that the company is gearing up for competition from
RIL’s Jio Infocomm, which is expected to launch nationwide 4G
data services by the end of this year/early next year. Since 4G
is a very small portion of the company’s revenues, we do not
see any material impact on revenues and earnings.
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