2G GSM / CDMA

Implications of Final norms for Unified Wireless Licence

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Mobile Revenues IndiaDoT published the final version of Unified License, which essentially de-links spectrum from a telecom permit/license and allows for all services (Mobile or Fixed Access/NLD/ILD/ISP etc.) to be provided in a single pan-India permit at a cost of Rs150mn.

At present, all telecom service providers except the recent (new) 2G spectrum [1800/800] winners have a mobile or fixed-line license (Unified Access Service License or UASL, which is service-area specific) that allows ICR arrangements involving addition of new subscribers (through sale of SIM cards) on spectrum/network not owned by the licensee. However, recent spectrum winners as well as existing UAS holders due for renewal in coming years

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JustDial Profit Growth SlowsDown

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Justdial SEarch Growth and ProfitsJustDial’s revenues increased 38.4% YoY in FY13 to Rs3.6bn (inline with our expectations). Search-related revenues increased 37.9% YoY owing to a 20.8% YoY growth in advertisement campaigns and a 14.2% YoY growth in realizations. Profit increased 26.7% YoY in FY13, 7% below consensus estimates, owing to other income of Rs135mn and exceptional cost of share issue expenses of Rs15mn.

Ad campaigns increased 20.8% YoY to 206,500 (vs 171,000 in FY12 and our expectation of 207,500). Realisations improved 14.2% YoY (vs 15.5% YoY expected by us) to Rs17,320.

JustDial received 364mn search requests in FY13 (up 43% YoY). Internet (182.6mn, up 47% YoY) and mobile-based (41.9mn, up 208% YoY) searches were the largest contributors. Voice-based searches increased 20% YoY to 139mn whilst SMS searches increased 47% YoY to 0.9mn.

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Vodafone India’s Voice Profits Rise Subscribe Base at 155Mn

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Vodafone India Voice Profits RiseVodafone India’s 1QFY14 results appear to have benefited from a stable competitive environment in India, with revenues growing 7.8% QoQ and voice ARPMs rising. Indeed, the growth in voice realizations were the highlight, which is likely to increase gradually. Vodafone’s India revenues increased 7.8% QoQ to Rs94bn (excluding Indus revenues) underpinned by a strong growth in voice and data revenues in 1QFY14. Voice revenue growth (including messaging revenues; change in reporting by Vodafone) increased 7.4% QoQ whilst data revenues increased 17.6% QoQ.

Revenue growth during the quarter was led by both,

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Improving Voice Good for A-Vo-Id, Reliance Jio Challenge from Data in Medium Term

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Improving Voice Business India - Headwinds from DataWe expect sustained improvement in the Indian wireless industry’s fundamentals as basic scale economics of the business catch up and both the scope and intensity of competitive pressure reduce. The A-Vo-Id group is very well-positioned to benefit from this theme and expect sustained market share gains for these company over the next few years. We also believe that incremental regulatory developments should be in favor of the industry as spectrum pricing and allocation start falling in sync with

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JustDial Facing Competition at All Levels

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Justdial CompetitionJustdial (JD) provides contact information and user reviews about local businesses, products and services to its users through telephone/SMS, Internet and mobile Internet platforms. JD database contains 9.1m business listings (as of March 31, 2013) – predominantly comprising small and medium enterprises (SMEs) – across various towns and cities in India. Some of these businesses pay JD for priority listing in its search results and also to get leads to potential consumers that seek supplier information through JD.

JD had first mover advantage and was one of the first companies to offer comprehensive local search services in India. However, alternatives have come up in niche verticals like burrp & Zomatio on the Mobile & Web, AskMe and GetIt in Calling and not to

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Q1-2013 Results expectations 2% Increase in QoQ RPM for A-Vo-Id Group

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Mobile Revenues IndiaThe continued withdrawal of discounts/ promotions [Airtel here Vodafone here, and Idea here A-Vo-Id Group], the June quarter could be the first quarter of material RPM increase. Our checks suggest a 2% QoQ RPM increase could be reported (two-thirds of our full-year number) in 1Q14. We build a slight drop in MOU on account of elasticity. It will be interesting to see the elasticity behaviour. We build in a slight decline in MOU, though our interactions with operators indicate that they have not seen any elasticity.

Even as we expect the voice RPM uptick to be modest, we believe this marks a turn in RPM trajectory that should hold for some time. More importantly, pricing-led growth has benefits in

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2G Data Tariff Cut, A Gimmick by Airtel, Vodafone and Tata DoCoMo + Data Potential

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Mobile Data Tariff Cuts in IndiaIn recent days, Airtel, IDEA, Vodafone and Tata DoCoMo, have cut their “pay-as-you-go” data tariffs by 80-90%. The headlines look catchy, but it applies to only certain plans or when the customer exceeds the existing allowances. Yet again, everyone is following each other, which again shows that trying to differentiate in India is difficult.

For 2G data, Airtel’s data pricing is down to 1p/10 KB, while peers have reduced the price to 2p/ 10 KB from 1-2p per KB – this amounts to 80-90% reduction on the “pay-as-you-go” tariffs. In most of the cases, 2G data price cuts have been done in circles where these telcos didn’t win 3G licenses.

The current data bundles are priced at around 20p/MB or US0.4c/MB, which is cheaper than these ‘pay-as-you-go’ plans. But the ‘pay-asyou- go’ plans could act as a hook to attract new customers (given its convenience) and can also help with churn reduction. Moreover, data penetration rates are currently sub-10% and data revenue contribution is 7-9%. So at this stage, we don’t think these price cuts alone will have a

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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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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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