Tele-tracker – September :: ICICI Securities

Drastic fall in subs added & competition!!!
Industry loses subscribers for first time…
Strongly signifying a reduction in the competitive intensity in the industry,
the GSM subscriber base fell by 7.1 million in August 2012. It is the first
time that the industry has witnessed a fall in its subscriber base. We
believe the primary reason for the fall is the withdrawal of freebies and
lucrative offers by operators to support their ARPMs and margins, which
took a beating in Q1FY13. The GSM subscriber base stood at 671.9 million
in August 2012.
Incumbents fall big!
The monthly trend seen among incumbents took a complete u-turn in
August with the top 3 GSM subscribers reporting a decline in their
subscriber base as against considerable addition in July 2012. While
Bharti reported a decline of 1.9 million of its subscriber base, Vodafone
and Idea each saw their subscriber base decline by 1.6 million. In July
Bharti, Vodafone and Idea had reported net adds of 1.5 million, 1.2 million
and 0.5 million, respectively.

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Uninor – runs out of steam!
Uninor has felt the heat of the Supreme Court ruling that cancelled all its
licenses as after dominating the net adds figures till February, Uninor has
witnessed a decline in its net adds and reported a decline in the last two
months in its subscriber base. Uninor lost the most subscribers in August
2012 in the industry at 2.4 million against 1.1 million in July 2012.
Others…
Aircel and Loop were the only operators to add any subscribers in August
2012. Aircel added 0.8 million subscribers in August against 0.3 million in
July while Loop, with its operations only in Mumbai, added 0.1 million
subscribers against a decline of 0.2 million in July.
Industry outlook
We believe the decline in the subscriber base of the industry was brought
about by operators withdrawing freebies and lucrative offers. This is a
strong signal of reducing competitive intensity among incumbents after
the aggressive spell post the cancellation of 122 licenses by the Supreme
Court in February 2012.
Also, the reserve price of | 14000 crore for 5 MHz seems to be on the
higher side and may induce a subdued response for the upcoming
auctions as most players are highly  leveraged and finding it difficult to
service their existing debt. DB Etisalat, STel and Loop (except Mumbai)
have already decided to shut shop in India while Uninor has scaled down
its operations to nine circles.
As for incumbents, they would witness a huge financial outgo as and
when their licenses come for renewal as they will have to pay the auction
determined price for their spectrum. Bharti, Idea, RCom and Vodafone
would witness a financial outgo, the NPV of which would be | 37300
crore, | 23394 crore, | 31100 crore and | 38559 crore, respectively, on the
basis of the reserve price. We expect tariff hikes in the industry to battle
this financial outgo, which would augur well for the industry.
We maintain our TP of | 80 and | 50 on Idea and RCom, respectively,
and rate them as HOLD.

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