Month: June 2013

How will Amazon Fresh Impact Offline Grocerry Retailers ?

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Amazon Fresh - Online Grocery Retailing ModelAfter testing for 6 years in Seattle, Amazon launched AmazonFresh in LA, which is the beginning of Amazon’s grocery expansion efforts to potentially all large metro areas in the coming years. The grocery category is a ~$600bn opportunity in the U.S., but Amazon’s strategy will likely target the top 20 metro areas (MSAs) by population, which we estimate is a $220bn opportunity.

Some of the Attributes to AmazonFresh that may differentiate it from its competitors and diminish the negative impact of AmazonFresh include – charging fees ($7.99-$9.99 per deliver below $100), Amazon Prime Fresh program (high $299 upfront fee), opportunity to sell non-grocery products that have higher margins, third party marketplace and AmazonFresh may target a higher income customer.

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Mobile Industry Views on RPM Increasing + 3G Data + National Roaming

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Mobile Industry in IndiaAll telcos expect RPM to inch up marginally in 1Q as everyone is curtailing free minutes/freebies, which is pushing the implied RPM up. Going forward, we expect competitive intensity to further decline as we expect some of the smaller telcos to further reduce their footprint and close operations in a few more circles. This would likely lead to continued MOU shift in favor of larger telcos, like Bharti, Idea, etc

3G Data growing slowly and steadily – Expect continued data increase (off low base) led by improving 3G coverage and increasing smartphone penetration. However, we do not expect any Indian telcos to show a hockey stick increase given limited capex investments and only 5 MHz spectrum per operator. Based on our meetings, we believe larger telcos are seeing a temporary slowdown in addition of new subs given the court order on

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Thai 3G Story Ahead of India

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DTAC Launches iPhone 5 in ThailandThe Thailand 3G Story is ahead of India as it reaches around ~40% penetration with almost 50% of the consumers having Internet-ready handsets (smartphone/feature-phones).

Thai Consumers appear to be willing to spend more for data services. This is contrary to our Indonesia and Philippine findings, where most aren’t willing to raise spending. Networks have deteriorated and now majority of the respondents are willing to raise their overall telecom spend for better network quality or faster download speeds. Poor network quality, we believe, is linked to under-investment

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SmartPhones and Era of Application Processor Chips

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ARM Processors for SmartPhonesThe advent of product cycle chips is in practice a function of the market share dominance of Apple and Samsung. As share of these 2 customers has risen (coincident with the explosive growth of smartphones and tablets), it has created an investment category based on their suppliers. This is not to suggest that the dominance of these 2 OEM’s will persist in perpetuity but demonstrates the change in Semiconductor sinking into Products.

Early on, Apple took a vertically integrated approach, recognizing the value of integrating chip design, with hardware, software, and firmware. While this strategy has failed historically, Apple has achieved critical mass, and they have not needed to take on the high-fixed cost of chip fabrication facilities. At its most basic, this has robbed the chip market of

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South Korea Achieves Full Nationwide 4G LTE Coverage

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SK Telecom 4G LTEKorean telcos showed disappointing performance in 2012 due to the heated LTE marketing competition during that period. With all three telcos equipped with nation-wide or near nation-wide LTE networks, the telcos engaged themselves in heated marketing competition to attract more LTE subscribers. As a result, the telcos managed to increase the LTE subscriber portion of their subscribers and finally posted ARPU turnaround, but overall reported weak earnings in 2012.

At this point, we believe

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Growth of Internet on PC, SmartPhone, Tablet in Japan

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Internet-Growth-JapanThe Electronics and Gadget Savvy Japan witnessed from the second half of the 1990s through the first half of the 2000s where most people used PCs to go online. Growth in Internet use today, however, is being driven by rapid proliferation of smartphones. The number of people going online via PCs in Japan broadly plateaued in 2012 at around 97mn. In contrast, smartphone penetration at end-FY12 was only 33% so Japan is still in the midst of smartphone proliferation. The Chart on the left shows a Decade of Growth of PC Vs SmartPhone vs Tablets used to go Online.

The number of Internet-capable devices in Japan has risen by 50% compared

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Lack of M&A Telecom Policy will hurt new entrants and benefit incumbents

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Indian Telecom Policy Lacks Mergers AcquistionIn an attempt to capture the possible Revenue Market Share gains, we perform a circle-wise analysis to capture the possible gains for the company. We expect incumbents RMS to improve in established circles.

We highlight that we have relied on incremental market share as a key criteria to determine the steady revenue market share for all circles. Separately, we assume that new GSM entrants will continue to lose market share given their stretched balance sheets and inability to benefit from any meaningful Mergers & Acquisitions (we don’t expect any near-term clarity on M&A policy and this will prevent new entrants being disruptive/gaining scale).

In addition, we expect the

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HTC – SmartPhones & Headwinds in Sales

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HTC Mobile to Face HeadwindsHTC, Manufacturer of the World’s Best SmartPhne HTC One is seeing some headwinds as the momentum for HTC One has slowed and expect its June sales to decline by double digit MoM. We believe the market is overly optimistic about HTC One, ignoring the mature high-end market and Samsung’s aggressive marketing. Although HTC plans to launch several new models, such as the Butterfly, the HTC One mini and another mid-end phone, we believe none of them offer much attraction (price or product differentiation) to carriers.

From 2009-2012, consumers[US & Europe] were chasing smartphone

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Status of Indus Towers / Bharti Infratel – Tower Business

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Telecom Towere Business IndiaThere is a Potential of Listing Indus Telecom Tower Company separately on the Stock Exchanges as it could help its owners, Bharti Infratel and Idea, raise money to repay Indus’ debt, providing more cushion for spectrum renewal and upcoming auctions (like 700 MHz).

Indus is a subsidiary of Bharti Infratel (already listed), and as a consequence, there is already a market ascribed value for Indus. Bharti Infratel stock price has fallen 32% from Rs 220 (IPO price on 28 Dec-12) to Rs 150.9 (yesterday’s close), and therefore the market implied value for Indus would have also declined, making current valuations inexpensive vs. tower-cos peers. We therefore remain uncertain on the timing of such an IPO

Smaller telcos continue to selectively close operations which will impact tenancies of tower companies. However, we expect limited impact on Bharti Infratel as majority of tenancies

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Different Strengths of Different Telecom Companies

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Different Business models of Indian TElecomWithin Indian Telecommunications Companies, no single telco has a clear and significant competitive edge. On like-for-like comparison of metrics such as scale, distribution, financial strength, regulatory hedge, etc, Airtel arguably fares better – looking both over the past five years and into the next five years. This also takes into account the ability to capitalise on the changing revenue mix going forward – from voice to data.

Otherwise, there are pockets of operational and network strength for each telco, such as Idea Cellular’s impeccable execution in recent years. Even Reliance Communications can never be underestimated given its extensive

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