Telecom - Spectrum Auctions: Day 14 - Dwindling Action :: Edelweiss

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Telecom - TRAI Prunes Termination Charges :: Edelweiss

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Sector preview Q3FY15 - Telecom :: HDFC Securities

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Telecom Sector | Q3FY15E Results Preview (Bharti Airtel & Idea Cellular) :: IndiaNivesh

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Telecom – Spectrum saga – NIA alert:: HDFC Securities

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Telecom: Four years of 3G: taking stock of revenue market share movements :: Kotak Securities

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Four years of 3G: taking stock of revenue market share movements. Four years
into the commercial launch of 3G in India, it is safe to say that its impact on competitive
positioning has been strictly operator-specific: Idea and Vodafone are the only operators
to have gained significant revenue market share in their 3G circles while BSNL and
RCOM have failed to leverage 3G (similar to how these two failed to leverage 900 MHz
spectrum in the past). Bottom-line: spectrum holdings (alone) don’t win market share;
solid execution and right go-to-market strategies do.

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Telecom ƒ Subscriber growth rate remains steady… ƒ :Q3FY15 Result Preview : ICICI Securities, report

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Telecom - TRAI Recommends Cut in Licence Fee :: Edelweiss

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Q2FY15E Results Preview | Telecom Sector | Seasonality to haunt wireless revenue growth trajectory...IndiaNivesh

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We expect Telecom companies to report de-growth in wireless revenues (0.5-2.0%
Q/Q), led by seasonality. However, increased contribution of data is expected to
reduce the impact of voice-led seasonality during the quarter. We estimate 13-
15% Q/Q data revenue growth for the incumbents. Wireless EBITDA margin is
likely to contract slightly for both Idea/Bharti (-68/-62 bps Q/Q) led by decline in
wireless traffic. For Bharti Africa, we model flat sequential US$ revenue growth
due to significant depreciation in Africa revenue currency basket (v/s USD). The
street expects no impact on continuing hangovers like: (1) Reliance Jio Infocomm’s
4G launch, and (2) upcoming 900/1800 MHz auction. As a result, telecom stocks
delivered ~29% return over last 3-4 months. In our view, at current price level
both Bharti and Idea leaves no safety margin, we maintain SELL on Bharti/Idea.
Seasonal weakness in wireless volumes performance: We expect Bharti/Idea to
report a -0.5%/-2.0% Q/Q revenue growth in Q2FY15 Mobile India wireless revenues
led by volume de-growth. However, the growth on wireless data front is likely to
remain robust, expect strong volume (18/20% qoq) and revenue (13/15% qoq)
growth for Bharti/Idea. In Q2FY15, Idea is likely to lead the subscriber gross addition
and could add nearly 4.0 mn subscribers (v/s 2.0 mn for Bharti). We estimate Bharti’s
consolidated revenue to increase 1.0% Q/Q led by South Asia business and others,
partially offset by decline in India Mobile-Wireless revenue.
Improvement on ARPM front should continue: After ~9.2% improvement on ARPM
front in last eight quarters, we model 0.9/1.7% Q/Q increase in ARPM for the Idea
and Bharti. The ARPM growth would be delivered by stable voice realizations and
continued strong data growth.
Bharti Africa Performance to be impacted by currency depreciation: In Africa, we
estimate flat $-revenue growth on sequential basis due to significant depreciation
in its Africa revenue currency basket. Africa’s rupee revenue is expected to increase
by 1.0% Q/Q on account of 0.8% Q/Q depreciation in INR (v/s USD). We expect
Africa’s EBITDA margins to increase by 102 bps Q/Q to 25.4%, partially offset by
higher SG&A spend to win back subscriber in markets like Nigeria. PAT level loss in
Africa is expected to decline on sequential basis.
Reliance JIO 4G rollout, upcoming spectrum auction, key monitorables: After
aggressive competition in recent spectrum auction, key event to watch out would
be next round of spectrum auction (scheduled in 2HFY15). Additionally, 4G launch
plan of Reliance JIO, would be critical to watch given potential impact on data tariffs.
Reliance JIO would have to launch 4G services before May-2015 in order to meet
the roll-out obligations associated with its 2,300 band spectrum.
Maintain SELL rating on Idea/Bharti: After ~29% run-up in the stock price, in our
view major positive news is very well factored in the stock price. The hangover like
(1) Reliance JIO launch, and (2) upcoming spectrum auction could impact the overall
performance. In the past main trigger for the stock performance was curtailment
of freebies and margin improvement, which could take a hit post Reliance-JIO launch.
We maintain SELL on Idea/Bharti both of these have already reached our target
price of Rs.165/share (Idea) and Rs.405/share (Bharti). Since our SELL
recommendation Idea and Bharti had corrected nearly by 27% and 10%, respectively.



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Telecom - 4G Under Incubation; Near Term Favourable; Sector Update :: Edelweiss PDF link

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The optimist in us is justifiably enthused by the ensuing improvement in the sector’s fundamentals triggered by ebbing competitive intensity and improving realisations. However, investors continue to be jittery, perceiving the anticipated launch by Reliance Jio (RJIO) as disruptive. In our view, this apprehension is unfounded as absence of relevant ecosystem for 4G technology renders any big bang disruption untenable. In fact, we are confident that in the near to medium term, the sector will be buoyed by tailwinds riding better-than-expected realisations and higher volume surge (voice and data) rather than headwinds from either the regulator or competitors. Exponential data surge and waning promotions & offers will aid players improve cash flows and thereby pare debt. While we like both Bharti Airtel (Bharti) and Idea Cellular (Idea), we prefer the former due to its proportionately lower dependency on circles up for renewal (~30% revenue versus Idea’s 70%), thereby capping auction related out flow. Any Africa operations related corporate development will be further upside risk to our target price. We maintain our positive view on the sector with ‘BUY’ on Bharti and Idea.

RJIO: Potent, but distant threat

Without doubt, RJIO will be a scale player given the technology investments further bolstered by balance sheet might and robust execution record of the parent company. However, we believe, it will gain scale gradually post launch (expected by August 2015). Even in a best case scenario RJIO is unlikely to make profits till FY19 (refer table 1). Also, more established players like Bharti and Idea are in no way resource constrained and are fighting fit to counter any unrealistic offerings.

Limited competition, price discipline to ring in benefits

Post 2012 auctions, the competitive landscape has narrowed dramatically with only ~5 operators per circle versus ~11 earlier. This proved a boon for the industry, enabling operators regain their pricing mojo. Further, in order to help the sector stand on its feet the new government is likely to adopt a more accommodative stance. Moreover, we expect the industry to adopt a disciplined approach, unlike the earlier price hike regime wherein discounts and promotions had wreaked havoc. Thus, higher tariffs will boost cash flows and reduce net debt of companies. In case of Bharti and Idea we estimate cash flows of INR647bn and INR167bn, respectively, over FY15-20.

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TRAI recommendations for Radio - Event Update - Ray of hope for radio industry :Centrum

Ray of hope for radio industry



We believe TRAI's recommendations for migration of licenses from
Phase-II to Phase-III which is set to expire from March 2015 favours
the industry. Reconsidering the reserve price for fresh cities in
Phase-III, linking migration fees to Phase-II and Phase-III auction
prices depending on the group, extending the license tenure to 15
years and reduction of minimum spacing to 400Khz are all highly
positive. As most radio players are cash strapped and loss marking,
these recommendations offer hope to the industry which has been
waiting for Phase-III auctions for the past 3 years, which could now
happen before March 2015.

$ Reserve price for fresh cities in Phase-III to be reconsidered: We
believe the reserve price for fresh cities in Phase-III auction was
very high and could have led to non-participation by players as in the
case of telecom 2G auctions in November 2012 and March 2013. Case in
point: Reserve price for Shahjahanpur at Rs156mn is similar to that of
Chandigarh, Dhanbad has a reserve price of Rs51mn similar to Patna's
while Malegaon has a reserve price of Rs35mn similar to Nasik's. High
reserve price could have jeopardised the auction, hence reconsidering
the methodology for determining the reserve price is positive as more
players will be able to participate.

$ New formula for calculating migration fees: We believe the new
methodology of calculating migration fee that is linked to Phase-III
and Phase-II auction prices for cities under different groups X, Y, Z
with the license tenure of 15 years is fair. The reason being scarcity
of spectrum in some cities and others not having incremental
frequencies in Phase-III. Case in Point: In Delhi, only one frequency
is available for auction under Phase-3. Hence, any auction under
scarcity conditions is fraught with the risk that the final price
would be lopsided and irrational. However, residual value of the
Phase-II permission, calculated on a pro rata basis, would be deducted
from the Phase-III migration fee with migration happening not later
than 31st March 2015.

$ Implementation of minimum spacing of 400Khz: TRAI has recommended
early implementation of its earlier recommendation on prescribing
minimum channel spacing with a license service area to 400Khz from
800Khz. This will increase the number of FM channels in each city in
the given spectrum band, leading to more stations being available for
auction. As radio is heard mostly on digital devices, mobiles and car
stereos, channel separation can be reduced to 400Khz and encourage
differentiated content as under Phase-III policy, one player is
allowed to buy multiple frequencies in a city.

$ Positive for Radio industry: We believe the recommendations of TRAI
for migration of FM Broadcasters from Phase-II to Phase-III is highly
positive as it could take place before March 2015  after completion of
Phase-III auction. Our calculation suggests ENIL (Hold) will need to
pay a minimum Rs2.7bn as migration fees if all frequencies are sold at
the reserve price or Rs3.6bn if frequencies are sold at 40% premium to
the reserve price. Similarly, Sun TV Network (Buy), DB Corp (Buy) and
HT Media (Buy) will have to pay Rs2.2bn, Rs0.7bn and Rs1bn as
migration fees if all frequencies are sold at the reserve price.



Thanks & Regards

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JPMorgan-- Relatively aggressive bidding for 900 MHz spectrum; 1800 MHz final spectrum price not much different from reserve price

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Relatively aggressive bidding for 900 MHz spectrum; 1800 MHz final spectrum price not much different from reserve price

The DoT released the status report of spectrum auction after day 1 (and 7 rounds).The 1800 MHz spectrum price is settled for all circles except Gujarat, where spectrum demand is still higher than supply. In 900 MHz band, Mumbai spectrum price is yet to be finalized. As we had expected, there is relatively aggressive bidding for 900 MHz spectrum as incumbents have to defend their existing spectrum holdings. The final price for 1800 MHz spectrum is not meaningfully higher than reserve price in 21 of the 22 circles (Gujarat spectrum price is yet to be discovered). The information about who has won how much spectrum (which we believe is the most critical question) will be released after end of the auction. As discussed below, Reliance Jio seems to be actively participating in some circles (especially in the metros for 900MHz going by the price).

· Auction is still ‘on’ for 900 MHz spectrum in Mumbai and 1800 MHz spectrum in Gujarat. The demand for spectrum is higher than spectrum put on auction in these two circles. As we had suggested in our earlier note (“Reliance Jio's earnest money deposit point to serious pan-India ambition; potential negative for the sector & incumbents” dated Jan. 19^th 2014), the supply-demand condition is relatively favorable for 1800 MHz spectrum in the current auction. Hence, spectrum reserve price (or price not much higher than it) will be the final/discovered price in 18 of the 22 circles for 1800 MHz spectrum as supply for spectrum is apparently higher than demand in these circles. Operators will pay a modest premium on initial spectrum reserve price for 1800 MHz spectrum in Bihar (8% premium), UP (west) (6% premium) and West Bengal (1% premium) circles. Auction is still on in the Gujarat circle as operators have bid for 14.2 MHz spectrum (at the end of round 7) vs. availability of 12.0 MHz spectrum only. Gujarat 1800 MHz spectrum price is already 4% above initial spectrum reserve price and will likely increase further. Similarly, Mumbai 900 MHz spectrum demand of 21 MHz is also higher than supply of 16 MHz and incumbents (Bharti and Vodafone) will try their utmost to retain their existing 900 MHz spectrum.

· Relatively aggressive bidding for 900 MHz spectrum; Mumbai final spectrum price yet to be discovered. Final spectrum price is likely to be meaningfully higher than reserve price for 900 MHz spectrum in all three circles (Delhi, Mumbai & Kolkata), where 900 MHz spectrum has been put on auction. Mumbai 900 MHz spectrum price after day 1/round 7 is 44.3% higher than spectrum reserve price. It is about 2.3x final 1800 MHz spectrum price and will move up further as aggregate demand for 900 MHz spectrum is 21 MHz vs. available supply of 16 MHz. Bharti and Vodafone own this spectrum currently and they will likely bid aggressively to retain their spectrum. We currently do not know who the challenger (operator) in this circle is (it is likely Reliance Jio as per news reports). Kolkata 900 MHz spectrum price has settled 38.5% above initial spectrum reserve price, while Delhi spectrum price has tentatively settled at 19.1% above initial reserve price. Kolkata and Delhi 900 MHz spectrum price has settled at 2.4x and 2.0x 1800 MHz spectrum price. We note that Bharti and Vodafone will likely try their best to retain their existing spectrum holding in these circles as their current infrastructure supporting 900 MHz spectrum will go redundant if they fail to win it back. It will imply significant capex.

· List of winners is not yet available; whether or not Reliance Jio wins significant spectrum will impact the future of the industry. The DoT will release the list of winners after the culmination of the auction in all bands and circles. Reliance Jio seems to be actively participating in some circles (especially in the metros for 900MHz going by the price). The million dollar question is whether Reliance Jio will win significant spectrum across circles in the current auction. We believe that just the higher spectrum price is a one-time hit and the impact is easy to quantify/digest. However, the event of Reliance Jio’s (expected) significant entry (if it gets evident from the auction outcome) is the bigger worry. We would judge “significant” entry by Reliance Jio based on the circles for which it bags spectrum, amount of spectrum won and the nature of the spectrum (900 MHz versus 1800 MHz).

Table 1: Relatively aggressive bidding for 900 MHz spectrum; spectrum price yet to be discovered for 1800 MHz spectrum in Gujarat and 900 MHz spectrum Mumbai

		Spectrum put on sale	Aggregate demand after round 7	Provisional winning price per MHz after round 7	Initial spectrum reserve price	Premium on reserve price at the end of Round 7
		in MHz	in MHz	in mn per MHz	in mn per MHz
1800 MHz spectrum
	Andhra Pradesh	22.6	18.4	1,630	1,630
	Assam	11.4	11.2	70	70
	Bihar	4.2	2.2	400	370	8.0%
	Delhi	22.8	17.6	2,190	2,190
	Gujarat	12.0	14.2	1,487	1,430	4.0%
	Haryana	16.4	5.0	270	270
	Himachal Pradesh	20.4	10.2	60	60
	J&K	6.2	1.8	50	50
	Karnataka	24.6	22.6	1,550	1,550
	Kerala	28.0	20.6	520	520
	Kolkata	26.8	17.0	730	730
	Madhya Pradesh	19.2	10.6	430	430
	Maharashtra	14.0	13.8	1,730	1,730
	Mumbai	25.2	18.0	2,070	2,070
	North East	26.8	14.4	70	70
	Orissa	28.0	10.0	160	160
	Punjab	18.4	12.8	540	540
	Rajasthan	20.8	10.4	260	260
	Tamil Nadu	30.2	10.0	2,080	2,080
	UP (east)	9.8	6.2	610	610
	UP (west)	2.4	0.6	657	620	6.0%
	West Bengal	13.0	5.6	212	210	1.0%
900 MHz spectrum
	Delhi	16.0	16.0	4,289	3,600	19.1%
	Kolkata	14.0	13.0	1,732	1,250	38.5%
	Mumbai	16.0	21.0	4,732	3,280	44.3%

Source: DoT, J.P. Morgan; Note: Highlighted cells suggest circles where demand is higher than supply after round 7 of auctions; red highlighted cells suggest where spectrum price is yet to be discovered

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