Bharti Airtel's invested capital (IC) in its India wireless (mobility) business is Rs1,071bn. Contrast this with Idea Cellulars IC at just Rs600bn (30% of this or Rs182bn is spectrum assets).
Idea?s IC is 53% of Bharti?s IC but its revenues at Rs80bn in 3QFY15 are ~61% of Airtel's 3QFY15 India wireless revenues. Idea?s relative underinvestment in spectrum/capex vis-a-vis Bharti may allow it more leeway to exhibit much greater flexibility on pricing but can this be an enduring state of affairs?
What might Idea do on voice pricing in the future as/when it scales up its capex (currently, 12% of revenues vs Airtel's 15-16% for India wireless)? Maybe, there could emerge greater pricing discipline on Idea?s part as and when it feels compelled to raise capex and also as voice/minutes growth slows down for Idea. We think that it is only a matter of time until Idea can hold out. We believe Idea must follow suit on capex else it risks a P&L miss in FY16 and beyond (more so in FY17 as we expect RJio will be fully competitive on the ground by then).
Both the Companies going forward will face number of structural issues.
ARPM vs MoU trade-off (so voice pricing increase cannot really be fully passed through)
cannibalization of voice by data, which we think will play out over 1-2 years;
the impact of the imminent entry of RJio impacting data pricing, profitability and elevating capex
the impact on the balance sheet due to upcoming spectrum prices in early 2015
