Different Strengths of Different Telecom Companies

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 (more…)

RCom’s Tower Assets for Reliance Jio Infocomm – Not Suitable

Reliance Communications co-operation with Reliance Jio Infocomm is expected to be extended to tower assets and intra-city fibre assets as well. We raised some Key Questions with the managements of both the companies which have went un-answered.

1. Quantum of towers which will come up for monetization over next 2 years- We are of the view that Reliance Jio 4G LTE launch will be gradual and as such expect only 15k towers to be monetized by FY14e (RCOM 2G BTS in 3 metros is estimated at 8500)

2. The height of towers – A large part of the present tower base was largely built for CDMA (16k RCOM towers were newly built for GSM) aligned for low MHz spectrum. Notably Reliance Jio 4G LTE has spectrum in the higher 2.3 GHz band and RCOM’s ability leverage a lot of towers will come with an incremental CAPEX.

With such a scenario it is premature for good valuations for RCom, as a lot will depend on the time 4G services take to attract critical mass (ecosystem challenges) and the outcome of CDMA ( declining prospects suggest reduction in tenancy).

RCom – Sending Mixed Signals

RCOM’s strategy to pull back free minutes has impacted growth in traffic volume, but we believe this should improve going ahead. Its wireless revenue was up 2% q-q, driven by a 2% q-q increase in minutes. In comparison, Airtel and IDEA saw 5-8% q-q
minutes growth. Some 65% of the revenue mix is from GSM and mobile data, where growth is healthy, and RCOM believes it has stemmed the decline in its CDMA business. It is in the process of converting its CDMA network to data network to support higher levels of data usage.

RCOM added 2.4bn minutes in the quarter, implying 2% q-q growth. In contrast, Airtel and IDEA added 11-12bn minutes, hence recorded growth of 5-8% q-q. RPM remained flat for all the three players, although RCOM’s absolute number of 44p was ahead of Airtel’s and IDEA’s 41-42p. (more…)

RCom raises price of its tariff vouchers significantly

Reliance Communications has hiked prices of some of its special tariff vouchers (STV) significantly (over 20%). For example, a STV of Rs46 is now offering 140minutes of on-net minutes vs. 200minutes earlier. This is the second major tariff hike by RCom in the last 6 months. Earlier, in Sep’12 RCom increased the base tariff of its per second plan by 25% (from 1.2p/sec to 1.5p/sec).

RCom’s recent hike is in-line with our view that voice RPM is likely to move up in the next 2-3 years. RCom and Tata DoCoMo were the initial few operators to create price disruption in the sector. Rational behaviour of RCom and Tata DoCoMo coupled with pull back of Telenor, Aircel, and Videocon from several service areas is likely to lead to better pricing, in our view.

We expect rationalization of discounted/free minutes to happen first followed by hikes in base tariffs. Based on our analysis, rationalization of discounted minutes is likely to increase voice RPM by 20%.

Reliance Communications’ Tariff Hikes in Feb-2013

Along with incumbent GSM Lobby comprising of Airtel, Vodafone and Idea Reliance Communications has carefully hiked voice call tariffs in selected circles and not across India. The following chart shows the Tariff hikes by Reliance Communications in Feb-2013.
What do you think of RCom’s Mobile QoS ? is it poor that it is unable to hike tariffs and command premium like Airtel or Vodafone ?