Mobile Money Transfer & Commerce – Poised for Big Growth

Mobile Money in IndiaMobile money will witness rapid growth over the next 3-5 years in India due to increased rural presence of Mobile Operators in Rural India fueled by favorable regulation, rising penetration of smartphones as their prices are more affordable, and acceptance by retailers.

What is Mobile Money ?
We define it as mobile banking, money transfer, and m-commerce. This includes using Airtel Money to transfer money into another Airtel Money account or bank account or mobile number. One could pay one’s driver his monthly salary by transferring money using bank’s smartphone into his mobile linked bank account using his mobile number and mobile money ID. Alternatively, paying from one’s smartphone into the driver’s Vodafone mpesa wallet would allow him to (more…)

TRAI’s Insane Recommendation on 700MHz IMT Wireless broadband

TRAI has released its recommendations on advanced wireless broadband services in the 700MHz band. Key recommendations are
(1) FDD to be used in 700Mhz.
(2) Spectrum available is 698-806Mhz.
(3) A 45x2MHz configuration recommended in the 700MHz band. This effectively implies that only one operator (new/old) can win the spectrum. While the exact configuration is unclear and we see issues with the potentially steep pricing, a 45Mhz paired slot will lead to spectrum concentration in an efficient band.

While pricing will be crucial, overall auction of 700Mhz could result in incremental payouts and competition, with spectrum concentration a risk.

TRAI is insane to recommend that 45MHz pairing which means only one operator can be accommodated. Its recommendation that only FDD must be used is against the Spectrum Auction Rules – Auctioned spectrum is liberalized and the Operator is free to use any technology he likes or maybe he invents, who knows.

2G /3G 4G Spectrum Allocation Map

There are 8-10 voice operators in India in most circles. In addition, there are four new operators holding the LTE spectrum in the 2.6GHz band. Top operators own 6.2-10MHz of 2G GSM spectrum and 5MHz of 3G spectrum, which is lower than that in most markets. India continues to see double-digit minute growth, and data pickup has just started, with total broadband penetration (wireline + wireless) of less than 5%.

The following Chart shows the 2G [GSM / CDMA], 3G, 4G LTE Spectrum Allocation Map in India on a Nationwide Basis
charted after the end of November 2012 Auction.


You can see Circle wise and Operator wise Data of Telecom Spectrum Allocation in India.

Government May Miss Spectrum Collection Target Yet Again

For FY14, the government is looking to raise Rs 400 bn from the telco sector (both recurring revenue and one-off payments). As per the budget document, the one-off payments relate to receipts from auction of 1800, 900 MHz & 800 MHz and one-time spectrum charges as recommended by TRAI.

We estimate the targeted one-off amount in FY14 to be Rs 228 bn and expect the remaining Rs 180 bn to come from recurring revenues. In our view, the one-off amount could be raised if the government earns 1) onetime excess spectrum amount; and 2) successfully conducts 800 MHz auction at the set reserve price and sells all targeted 900/1800 MHz spectrum at a reserve price roughly 45% lower than the recently failed auction’s reserve price.

However, the 900 MHz refarming may not be conducted in FY14 due to prolong litigation. Even if 900 MHz, 1800 MHz and 800 MHz auctions are conducted in FY14, the government will only earn one third of the total raised money from the auction in this fiscal year as the remaining amount is likely to be deferred.

Why No Takers for 900 / 1800MHz Spectrum ?

The government has not received any interest for the next auction round for the 1800 MHz/900 MHz, which was supposed to commence on 11 March 2013. The government was slated to auction 900Mhz spectrum in 3 metros (Delhi, Mumbai & Kolkata) and 1800Mhz in 4 markets (Delhi, Mumbai, Karnataka & Rajasthan). The 900MHz spectrum in the metro markets is currently held by incumbents whose licenses are due for renewal in Nov/2014. The 1800MHz spectrum in the four markets was being re-auctioned after a 30% cut in
reserve price as the previous auction (in Nov/2012) had failed in these markets

While the industry’s decision to abstain might be linked to the ongoing legal challenge to the 900 MHz auctions, we see it as a clear sign of the industry’s rational stance on spectrum bidding and voice tariffs. The absence of any new entrants especially Reliance Jio Infocomm is also a positive.

MTS Sistema is the Only Bidder for 800Mhz Spectrum and that too in selected circles only. Will the DoT allot Spectrum to MTS or will it call off the auction needs to be seen.

The regulatory cost computation comprises – Excess spectrum charges (for which demand has already been sent by the government) and NPV of the spectrum renewal and refarming charges, which values the entire spectrum (each circle at the time of the respective renewal) assuming 900 MHz price at 2x the 1800 MHz price.

Though the absence by GSM incumbents in 900 MHz could be linked to their ongoing legal challenge to refarming, we see it as a further sign of rationality in the industry, which could potentially lead to further reduction in the reserve prices by the government.

Excess Spectrum Charge for Incumbeants in Delhi High Court

The Cabinet has recently decided that all GSM operators that hold spectrum above 4.4 MHz in any circle will have to pay a one-time fee. Notably, Airtel and Idea have excess spectrum of 73MHz and ~35MHz, for which they will have to make a payment of US$825m and US$325m, respectively. DOT had asked the operators to pay the excess spectrum charges by mid-January 2013. Incumbent operators (including Bharti and Idea) filed a petition in the Bombay High Court, seeking a stay order on this demand for payment. The court has now extended the relief to Idea till 04 April 2013.

The Delhi High Court has extended the stay order on DOT’s decision that demanded that telecom operators (including Idea and Bharti) pay the one-time excess spectrum charges by mid-January. The stay order was based on a petition filed by incumbent operators challenging the DoT order to pay the one-time fee. Earlier, the court had put a stay order till 01 March 2013. However, now DOT has sought more time to respond to the court. Hence, the next hearing is now scheduled for 01 April 2013 and the court has extended the stay order on payments till 04 April 2013.

We believe that the Indian telecom industry is going for virtual consolidation (number of meaningful players down to 6 from early teens) given the weak profitability and upcoming regulatory cost burden. We expect incumbents – notably, Idea and Airtel – to benefit from emerging trends (consolidation, growth in data, potential tariff hikes, etc) in the medium to long term.

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