Telecom: Update - Feb VLR net adds, Bharti's 4G network launch in Kolkata :: Kotak Securities PDF link

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Telecom: Update - Feb VLR net adds, Bharti's 4G network launch in Kolkata
` Feb VLR net adds - incumbents maintain share, Bharti's improvement
sustains
` Bharti launches 4G TD-LTE network in Kolkata




Telecom
India
Update – Feb VLR net adds, Bharti’s 4G network launch in Kolkata. Bharti
sustained its improvement in VLR net adds market share for the second consecutive
month. Increased focus on stemming volume market share loss and pricing aggression
in select markets are likely driving the improvement; however, the net impact on the
volume/pricing equation remains to be seen. In other news, Bharti has kick-started 4G
network launches in India with its commercial 4G services launch in Kolkata.

Feb VLR net adds – incumbents maintain share, Bharti’s improvement sustains
Key highlights from Feb 2012 VLR subs (a good though not accurate proxy for active subs on the
network) data released by TRAI recently
` Industry-wide VLR net adds for Feb totaled 10.7 mn, a downtick from 13.2 mn added in Jan.
VLR net adds were higher than reported net subs addition of 7.4 mn. We note that VLR ratio
(ratio of active subs to total reported subs) has continued to improve for the past six months,
driven by two factors in our view – (1) dual-SIM subs moving out of challenger networks; Feb 2
Supreme Court judgment has likely accelerated this move, and (2) reported subs rationalization
at TTSL – the company’s VLR ratio has moved to 57% in Feb 2012 from a low of 48% in Jun
2011 as the company has posted a decline in reported subs (to 82 mn from 91 mn in Jun).
` VLR net adds share for the GSM Incumbents (Bharti, Vodafone, and Idea) at 68.4% was higher
than their VLR subs share indicating VLR market share gains. This trend has now sustained for
the past five months.
` Bharti reported the second consecutive month of strong VLR net adds – it added 2.9 mn VLR
subs in Feb implying a 27.4% share of market VLR net adds. This marks the company’s highest
VLR net adds share since May 2011. This also builds on strong VLR net adds reported by Bharti
in the previous month. The company’s increased focus on regaining some of the lost volume
market share through selective pricing aggression among other means could be the likely driver
of improvement. However, the net volume/pricing impact of the pricing aggression is the key.
Bharti launches 4G TD-LTE network in Kolkata
Bharti has kick-started commercial 4G network launches in India with its TD-LTE network launch in
Kolkata. Even as we do not see the event as material from Bharti financials perspective, we
highlight the key features of the commercial launch
` Targeting only the wide-screen market for now – Bharti has launched their 4G service in
Kolkata with two devices – (1) 4G USB dongle priced at Rs7,999 – for nomadic use on laptops,
primarily; this market (around 6-7 mn subs pan-India) is currently dominated by CDMA
operators (RCOM, TTSL, and MTS) with their EVDO offerings, and (2) home wi-fi gateway
(indoor wi-fi LTE modem) priced at Rs7,750 – for home/SME broadband use; this segment is
currently dominated by fixed-line DSL players like BSNL, MTNL, Bharti, and RCOM. Bharti has
not launched an LTE handset or announced an LTE tablet (new iPad?) launch yet.
` Launches in Pune (Maharashtra), Chandigarh (Punjab), and Bengaluru (Karnataka) are likely in
the next month or two, as per press reports. We note that Bharti had won BWA spectrum in
four circles – Kolkata, Maharashtra, Punjab, and Karnataka – for a total payout of Rs33 bn.
Exhibit 2 depicts the BWA spectrum winners across circles.