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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Reliance 2G GSM Intra-Circle Agreements for Coverage + 3G On handsets + CDMA EVDO Data all India

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Reliance Communications plans to expand its pan-India network significantly through strategic 2G GSM Intra-Circle roaming agreements with existing operators, offering its customers wider coverage and uninterrupted service across the country. Under this arrangement, Rcom will be able to increase its network footprint by ~10,000 base stations following ‘pay as you use model’ with no additional capex. Alliance with Aircel (pan- India) is already in place and talks with Loop in Mumbai are ongoing. Potential alliance with Loop will help provide better coverage (Loop has 900 Mhz).

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NFC Mobile Payments Growth Slower – Gartner

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Gartner reduced its forecast for NFC mobile payments volume for 2016 by 40% to $22bn. Gartner attributed the revision to slower-than-expected uptake of NFC by consumers and merchants as well as the limited success of the Google Wallet and Isis Mobile Wallet initiatives.

Gartner noted that it expects NFC to account for 5% of total mobile-payments volume in 2017, up from 2% in 2013. Gartner forecasts that the global installed base of NFC-enabled phones will grow from 170mn in 2012 (3% of total handsets) to 2.1bn (32% of handsets) by 2017.

In India, >75% of payments are done by cash. Less than 3% is by credit and debit cards (owing to penetration being held back by high cost POS machines).

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PlayStation 4 and the Xbox One Console Pricing

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PS4-Multiplayer-gamesSony and Microsoft exhibited their respective consoles, the PlayStation 4 and the Xbox One, at the Electronic Entertainment Expo. Significantly, the companies indicated that the PS4 will sell for $399 compared to $499 for the Xbox One. Bloomberg reported that pre-orders for the PS4 exceed those for the Xbox One at both Amazon and Gamestop and cited the Xbox One’s restrictions on game sharing as a drawback for the console.

According to Bloomberg, Sony has delayed a decision to begin selling its console in Asia before the end of the year in order to
meet strong demand from the US and Europe.

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Idea Spends 1/3rd of Fresh Investments on 3G

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Idea Cellular continues to heavily invest in 3G – currently spending ~1/3rd of capex on 3G (network equipment + backhaul). It Expect mass market adoption of data (500m + data subs users) over next 3-5 yrs, with the mkt size expanding to Rs500-700bn.

Idea continues to gain both VLR (reflects active subs) sub share (+0.6% qoq in 4Q13 qtr) and rev mkt share (+0.9%qoq). Moreover,
its incremental share for both these metrics is 40-50%. Driven by (a) Increase in mobile penetration – Physical penetration is still only ~ 50%; (b) Increase in MoU per sub in part helped by lower incidence of multi-SIMs and (c) Improvement in voice

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LG Android SmartPhone Shipment Strong in Europe / South America

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LG MobileLG Electronics indicated that its smartphone volume growth (+20% QoQ to 10.3 mn units) was largely supported by its share gains in Europe and South America but its US presence is still not as strong. This tells us that LGE actually has built the needed scale per platform first through relatively less costly regions, which is one of the reasons why LGE’s 1Q13 margin was better than expected as reported. Also, this could imply that its further efforts to expand its presence in the US going forward (even with added and usually costlier promotions and marketing support) may not result in margin’s sharp ups and downs we saw in recent terms due to this improved scale per platform now.

That said, however, we still think that at least in the next couple of quarters there could be a headwind for its handset margins

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Reliance 3G Offers Unlimited Access to All Matches of ICC Champions Trophy

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Reliance 3G Cricket Launch EventReliance Communications (RCom), country’s no 4 mobile phone carrier by customers, has entered into partnership with Star Sports to offer unlimited live streaming of all ICC Champions Trophy cricket matches for 3G and prepaid GSM customers in the country.

With this partnership, Reliance customers can now avail unlimited live streaming of the matches on their smartphones by subscribing for a tournament pass of Rs 301 without paying any additional data consumption charges. Customers will also benefit from the package being inclusive of the Rs 50 subscription fee for access on www.starsports.com.

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