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Tata DoCoMo raises headline tariffs; will others follow?
News
Tata DoCoMo raised its headline prepaid tariffs on STD rates/SMS from
June 16 for new subscribers in Tamil Nadu. Based on our discussions with
DoCoMo call-center employees and from articles in local newspapers like
Hindu, we believe the following changes are made: 1) STD calls will be
charged 1p/sec for the first year and 2p/sec thereafter; 2) local SMS tariffs
were revised up to Rs1/SMS from 60p/SMS; and 3) STD SMS rates were
revised up to Rs1.5/SMS from Rs1.2/SMS. As per the Telecom Regulatory
Authority of India (TRAI), Tamil Nadu contributed to 5.7% of Tata’s total
gross revenues (GSM+CDMA) in 1Q11 and ranks as the 6th highest
revenue-contributing circle.
Analysis
This is the first time in the last 12-18 months that we have seen a headline
tariff increase from any telecom operator (until now, we saw free minutes
being curtailed and hence, implied RPM rising). Although today’s changes
are applicable only in one circle (as of now), and SMS/STD calls likely
contribute less than 25% of total ARPU (per GS estimates), the magnitude
of increase has surprised us. We believe today’s tariff increase implies 1)
DoCoMo may have realized that it is unsustainable to keep such aggressive
offerings and is now focusing more on profitability; 2) if an operator
realizes it has some bargaining power in any circle, it is likely to focus on
raising tariffs. However, we believe DoCoMo will continue its 1p/sec local
voice offering as 1) it introduced the “per second billing” concept in the
Indian market and has developed a brand around this; and 2) if a consumer
speaks for 40 seconds or more, this package has better realized yield than
an average yield of DoCoMo.
Implications
With the MNP impact now behind us and relaxation in M&A norms likely in
the coming months, we do not rule out such selective circle-by-circle
headline tariff increases by other operators as they realize it is
unsustainable to continue with such aggressive tariffs. We expect
incumbents like Bharti/Idea to follow them. We reiterate our Buy ratings on
Bharti (on CL) and Idea, and believe consensus is still not factoring in any
tariff increases. Our sensitivity analysis shows a 2p increase in FY12 RPM
for Bharti/Idea raises our implied values by 6%/13%. Risks: Higher-thanestimated capex/opex; lower-than-expect data uptake
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata DoCoMo raises headline tariffs; will others follow?
News
Tata DoCoMo raised its headline prepaid tariffs on STD rates/SMS from
June 16 for new subscribers in Tamil Nadu. Based on our discussions with
DoCoMo call-center employees and from articles in local newspapers like
Hindu, we believe the following changes are made: 1) STD calls will be
charged 1p/sec for the first year and 2p/sec thereafter; 2) local SMS tariffs
were revised up to Rs1/SMS from 60p/SMS; and 3) STD SMS rates were
revised up to Rs1.5/SMS from Rs1.2/SMS. As per the Telecom Regulatory
Authority of India (TRAI), Tamil Nadu contributed to 5.7% of Tata’s total
gross revenues (GSM+CDMA) in 1Q11 and ranks as the 6th highest
revenue-contributing circle.
Analysis
This is the first time in the last 12-18 months that we have seen a headline
tariff increase from any telecom operator (until now, we saw free minutes
being curtailed and hence, implied RPM rising). Although today’s changes
are applicable only in one circle (as of now), and SMS/STD calls likely
contribute less than 25% of total ARPU (per GS estimates), the magnitude
of increase has surprised us. We believe today’s tariff increase implies 1)
DoCoMo may have realized that it is unsustainable to keep such aggressive
offerings and is now focusing more on profitability; 2) if an operator
realizes it has some bargaining power in any circle, it is likely to focus on
raising tariffs. However, we believe DoCoMo will continue its 1p/sec local
voice offering as 1) it introduced the “per second billing” concept in the
Indian market and has developed a brand around this; and 2) if a consumer
speaks for 40 seconds or more, this package has better realized yield than
an average yield of DoCoMo.
Implications
With the MNP impact now behind us and relaxation in M&A norms likely in
the coming months, we do not rule out such selective circle-by-circle
headline tariff increases by other operators as they realize it is
unsustainable to continue with such aggressive tariffs. We expect
incumbents like Bharti/Idea to follow them. We reiterate our Buy ratings on
Bharti (on CL) and Idea, and believe consensus is still not factoring in any
tariff increases. Our sensitivity analysis shows a 2p increase in FY12 RPM
for Bharti/Idea raises our implied values by 6%/13%. Risks: Higher-thanestimated capex/opex; lower-than-expect data uptake
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