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India Equity Research Reports, IPO and Stock News
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● Our discussions with Tata Docomo management show that SMS
and STD call tariffs have been raised for new subscribers in all
circles, over the weekend.
● SMS tariffs have been raised with immediate effect by 67% for
local and 25% for national SMS. On a blended basis, this increase
could lead to a 3.6% increase in RPM for operators (assuming no
drop in usage).
● In addition, the company has announced a doubling of STD
(national) call tariffs after a year of connection of the subscriber.
● Coming from an operator who precipitated the tariff decline in the
sector in mid-2009, this comes as a strong signal that headline
tariffs could rise. We will not be surprised to see other operators
pick up the signal and increase tariffs (including local tariffs).
● While the telecom stocks have performed strongly in recent
months on the back of weakening competition, we believe
expectations of an end of competition and tariff increases should
trigger another round of outperformance from the stocks. We
retain OUTPERFORM on Bharti and Idea
Tata Docomo increases SMS/STD tariffs
Our discussions with Tata Docomo (not listed) management indicated
that over the weekend STD (domestic long distance) and SMS tariffs
have been increased across all circles (separately confirmed on the
tariff websites). Further, in the Tamil Nadu circle, the company has
increased local call tariffs in specific plans to bring them in line with
Tata Docomo tariffs prevalent in other circles. These changes
(summarised below) are applicable to new subscribers who wish to
take a new Tata connection (existing subscribers’ tariffs unchanged).
Figure 1: Changes to Tata Docomo tariffs effective over the weekend in
all circles
Old New Remarks
Local call
(p/sec)
1 1 Unchanged
National call
(p/sec)
1 1p/sec for the first year, will increase to
2p/sec from the second year onwards
100% increase after
a year of connection
Local SMS
(Rs/SMS)
0.60 1.00 67% increase
National SMS
(Rs/SMS)
1.20 1.50 25% increase
Source: Company data, Credit Suisse estimates
The company has raised the SMS tariffs with immediate effect by 67%
for local and 25% for national SMS. Based on TRAI data on SMS
usage, our analysis shows that an increase of this magnitude in SMS
tariffs by the industry could add 3.6% to RPM, assuming no negative
impact from elasticity. Real increase in RPM should be lower as:
(1) one can expect some drop in usage due to the tariff increase and
(2) this applies only to new subscribers.
In addition, Tata Docomo has given itself an option of doubling STD
(national calls) tariffs after a year of connection with the subscriber.
This could lead to a 9%-plus increase in RPM, based on the current
traffic patterns and assuming no usage drop.
With these changes, Tata Docomo’s SMS tariffs comes in line with the
tariffs of market leading operators, while the scheduled increase in
STD tariffs will take Tata’s tariffs above the current prices of market
leading operators (which are at 1-1.2p/sec).
While the increase in SMS tariffs should have an immediate impact on
RPMs, we believe the STD tariff change (deferred for a year) is
signals the operator’s intentions to the market. We recall here that
Tata Docomo was the key new operator (GSM) that precipitated the
tariff decline in the sector through its 1p/sec tariff in Jun-09. An
indication of tariff increase by the company is a strong signal to the
challengers that the current tariffs could be unsustainable.
We will not be surprised to see other operators pick up this signal and
start making minor increments to tariffs, eventually resulting in
increases to local tariffs. We currently continue to build a decline in
voice RPMs for the industry and could see an upside to our model.
Mar-11: A forgettable quarter for Bharti
Recent data from TRAI shows that Bharti’s market performance has
been less than impressive in recent months, on various counts:
● On TRAI reported revenue numbers, Bharti saw a 120 bp QoQ
decline in revenue market share in the Mar-11 quarter, including
QoQ revenue declines of 16%, 10% and 9% in Kolkata, Delhi and
TN circles.
● The active subscriber base (based on peak VLR numbers
disclosed by TRAI) has stagnated at 147 mn subscribers for three
months now (Feb-Apr). During this time, the industry has added
20 mn active subscribers (13 mn of which went to just two
operators – Vodafone and Idea).
● Replacing the reported subscriber base with the active subscriber
base in the calculations of MoU/ARPU for Mar-11 quarter, the
numbers show a much worse performance with QoQ MoU/ARPU
drops of 3.2%/1% vs reported numbers of 2.5%/0.1% decline.
Our discussions in the industry indicate no significant decline in
market share for the company in the circles mentioned above, in the
mobile segment (note that the TRAI number is a combination of all
UASL services, including fixed-line). Further, we note that there have
been no significant tariff actions by competitors in the months
mentioned above. Therefore, we believe that these weak numbers are
a temporary phenomenon, and retain our estimates and positive view
on the stock. Overall, we believe that Idea Cellular, showing strong
momentum in market share and being fully leveraged to the mobile
business upside, should continue its recent trend of outperformance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Our discussions with Tata Docomo management show that SMS
and STD call tariffs have been raised for new subscribers in all
circles, over the weekend.
● SMS tariffs have been raised with immediate effect by 67% for
local and 25% for national SMS. On a blended basis, this increase
could lead to a 3.6% increase in RPM for operators (assuming no
drop in usage).
● In addition, the company has announced a doubling of STD
(national) call tariffs after a year of connection of the subscriber.
● Coming from an operator who precipitated the tariff decline in the
sector in mid-2009, this comes as a strong signal that headline
tariffs could rise. We will not be surprised to see other operators
pick up the signal and increase tariffs (including local tariffs).
● While the telecom stocks have performed strongly in recent
months on the back of weakening competition, we believe
expectations of an end of competition and tariff increases should
trigger another round of outperformance from the stocks. We
retain OUTPERFORM on Bharti and Idea
Tata Docomo increases SMS/STD tariffs
Our discussions with Tata Docomo (not listed) management indicated
that over the weekend STD (domestic long distance) and SMS tariffs
have been increased across all circles (separately confirmed on the
tariff websites). Further, in the Tamil Nadu circle, the company has
increased local call tariffs in specific plans to bring them in line with
Tata Docomo tariffs prevalent in other circles. These changes
(summarised below) are applicable to new subscribers who wish to
take a new Tata connection (existing subscribers’ tariffs unchanged).
Figure 1: Changes to Tata Docomo tariffs effective over the weekend in
all circles
Old New Remarks
Local call
(p/sec)
1 1 Unchanged
National call
(p/sec)
1 1p/sec for the first year, will increase to
2p/sec from the second year onwards
100% increase after
a year of connection
Local SMS
(Rs/SMS)
0.60 1.00 67% increase
National SMS
(Rs/SMS)
1.20 1.50 25% increase
Source: Company data, Credit Suisse estimates
The company has raised the SMS tariffs with immediate effect by 67%
for local and 25% for national SMS. Based on TRAI data on SMS
usage, our analysis shows that an increase of this magnitude in SMS
tariffs by the industry could add 3.6% to RPM, assuming no negative
impact from elasticity. Real increase in RPM should be lower as:
(1) one can expect some drop in usage due to the tariff increase and
(2) this applies only to new subscribers.
In addition, Tata Docomo has given itself an option of doubling STD
(national calls) tariffs after a year of connection with the subscriber.
This could lead to a 9%-plus increase in RPM, based on the current
traffic patterns and assuming no usage drop.
With these changes, Tata Docomo’s SMS tariffs comes in line with the
tariffs of market leading operators, while the scheduled increase in
STD tariffs will take Tata’s tariffs above the current prices of market
leading operators (which are at 1-1.2p/sec).
While the increase in SMS tariffs should have an immediate impact on
RPMs, we believe the STD tariff change (deferred for a year) is
signals the operator’s intentions to the market. We recall here that
Tata Docomo was the key new operator (GSM) that precipitated the
tariff decline in the sector through its 1p/sec tariff in Jun-09. An
indication of tariff increase by the company is a strong signal to the
challengers that the current tariffs could be unsustainable.
We will not be surprised to see other operators pick up this signal and
start making minor increments to tariffs, eventually resulting in
increases to local tariffs. We currently continue to build a decline in
voice RPMs for the industry and could see an upside to our model.
Mar-11: A forgettable quarter for Bharti
Recent data from TRAI shows that Bharti’s market performance has
been less than impressive in recent months, on various counts:
● On TRAI reported revenue numbers, Bharti saw a 120 bp QoQ
decline in revenue market share in the Mar-11 quarter, including
QoQ revenue declines of 16%, 10% and 9% in Kolkata, Delhi and
TN circles.
● The active subscriber base (based on peak VLR numbers
disclosed by TRAI) has stagnated at 147 mn subscribers for three
months now (Feb-Apr). During this time, the industry has added
20 mn active subscribers (13 mn of which went to just two
operators – Vodafone and Idea).
● Replacing the reported subscriber base with the active subscriber
base in the calculations of MoU/ARPU for Mar-11 quarter, the
numbers show a much worse performance with QoQ MoU/ARPU
drops of 3.2%/1% vs reported numbers of 2.5%/0.1% decline.
Our discussions in the industry indicate no significant decline in
market share for the company in the circles mentioned above, in the
mobile segment (note that the TRAI number is a combination of all
UASL services, including fixed-line). Further, we note that there have
been no significant tariff actions by competitors in the months
mentioned above. Therefore, we believe that these weak numbers are
a temporary phenomenon, and retain our estimates and positive view
on the stock. Overall, we believe that Idea Cellular, showing strong
momentum in market share and being fully leveraged to the mobile
business upside, should continue its recent trend of outperformance.
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