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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RMS changes in the 3G era: some key top-down observations
We have tried to analyze the impact of 3G on relative market shares of 3G versus non-3G
operators in this note. For our analysis, we have looked at the cumulative change in revenue
market share (based on operator-wise gross revenues reported by the TRAI) from Sep 2010 to
Sep 2014. We have tried to cut the data in multiple ways to test if 3G has delivered on the
competitive premise (of market share gains with 3G and market share loss without 3G) that led
to the hyper-competitive fierce bidding for 3G spectrum in 2010. Our analysis does not throw a
definitive answer to the hypothesis. Impact of 3G has been strictly operator-specific –
 As a whole, 3G operators (summation of Bharti’s 13 3G circles plus Vodafone’s 9 plus Idea’s
11 and so on…) have actually lost 106 bps in RMS between Sep 2010 and Sep 2014.
This loss for all 3G operations combined stems primarily from the extremely poor
performance of BSNL/MTNL’s pan-India 3G operations and RCOM’s 3G operations in 13
circles. In their respective 3G circles (22 for BSNL/MTNL and 13 for RCOM), BSNL/MTNL have
lost 249 bps in RMS while RCOM has lost a massive 453 bps. Private operators have gained a
combined 143 bps in RMS while private operators ex-RCOM have gained 349 bps.
 Only three operators have gained RMS in their 3G circles – Idea (+522 bps), Vodafone (+229
bps) and Aircel (+61 bps). Idea is the only operator who has gained market share in all of
their 3G circles; the company has in fact gained RMS in all the 22 circles, 3G or non-3G.
Aircel’s gains have primarily come from circles where they had low (sub-10%) RMS in Sep
2010; they have not leveraged 3G well in their strong circles, however. Vodafone’s
performance across its 3G circles has been a mixed bag – the company has gained RMS in six
and lost RMS in three of its nine 3G circles.
 Not having a 3G network has not necessarily meant loss of market share or
competitive positioning. There are ample instances of operators gaining substantial RMS
despite not having (own, non-ICR) 3G operations in a circle. Few cases in point – (1) Idea’s
combined 360 bps gain in RMS in its non-3G circles, (2) Uninor, a 2G-only operator, has
gained between 307 and 766 bps in RMS in its six circles of operation, (3) the top-3
incumbents (Bharti, Vodafone and Idea) have gained a combined 10.6 %pts market share in
Orissa, a circle where none of the three incumbents won 3G spectrum, and (4) Vodafone
and Aircel have also gained material RMS in their non-3G circles; Aircel’s RMS gains in non-
3G circles were in fact higher than its RMS gains in the 3G circles.
Even as we have thrown a lot of data points already, that’s not the idea of the note or the
analysis. We essentially want to emphasize on one aspect – amid all the hype around spectrum
auctions and the criticality placed on having 3G or 4G spectrum, two key factors are often
underappreciated – (1) 2G is and will, for a while, remain relevant in India, and (2) spectrum is a
necessary but not sufficient condition for success (measured in RMS terms); execution matters!


LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily08012015ax.pdf