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Indian Telecom monthly update (February 2010)

Contributed by Nirmal Bang

By Nirmal Bang

As against the continued surge in the addition of subscribers witnessed over the last six months, the month of February saw a decline in the growth rate of subscriber additions which reduced by 29 bps to 3.22% in February 2010. Considering the fact that the month of February has 28 days, on a 30 day basis the subscriber additions would have been higher than that of January, 2010. The number of telecom subscribers in India increased to 600.69 mn at the end of February-2010 from 581.97 mn in January-2010. The overall Tele-density of India increased from 49.5% to 51.05% over last one month.

The number of subscribers in wireless segment increased 18.76 million to 563.73 million at the end of February-2010. But the rate of growth declined by 34 bps to 3.44%. Wireless Tele-density now stands at 47.91%.

There was an increase in subscribers in wireline segment for private players like Bharti Airtel, Tata Teleservices and Reliance Communication. But BSNL lost 0.08 mn subscribers in its wireline segment which caused the overall wireline subscriber numbers to decline by 0.04 mn to 36.96 mn during February-2010. The wireline teledensity at the end of February 2010 was 3.14%.

Bharti Airtel garnered 2.93 mn subscribers while maintaining its market leadership position with over 127.66 million subscribers and a market share of 21.3%. Reliance Communications crossed the landmark 100 million subscriber figure by adding 2.82 mn subscribers in February 2010. It had 100.59 mn subscribers at the end of February-10. Vodafone Essar surpassed Tata Teleservices in subscriber additions. Vodafone Essar added the highest number of subscribers at 3.09 mn in Feb-2010 and had 97.23 mn subscribers at the end of month. Tata Teleservices added 2.86 mn subscribers to reach 64.29 million subscribers as against 62.14 million subscribers of Idea Cellular. Aircel had 34.86 million subscribers in February-2010 achieving a growth rate of 5.52% m-o-m. There was an insignificant decline of 6613 customers of Sistema Shyam Teleservices. The new entrants, Uninor and S Tel, having launched their services in Dec-2009 fared well in terms of subscriber additions. Uninor had 3.56 million subscribers in February-2010 as against 2.54 million in January-2010. S Tel with a presence in three circles increased its subscriber base by 0.21 million customers ending the month of February-2010 with 0.72 million subscribers.

Tata Teleservices added 2.86 mn subscribers to reach 64.29 million subscribers as against 62.14 million subscribers of Idea Cellular. Aircel had 34.86 million subscribers in February-2010 achieving a growth rate of 5.52% m-o-m. There was an insignificant decline of 6613 customers of Sistema Shyam Teleservices.

The new entrants, Uninor and S Tel, having launched their services in Dec-2009 fared well in terms of subscriber additions. Uninor had 3.56 million subscribers in February-2010 as against 2.54 million in January-2010. S Tel with a presence in three circles increased its subscriber base by 0.21 million customers ending the month of February-2010 with 0.72 million subscribers.

Category A and B circles continue to dominate subscriber additions, adding 13.84 mn subscribers (around 74% of industry net additions). Share of additions for category B circles increased from 37.75% in Jan-10 to 43.88% in Feb-10.

Market Leader Bharti Airtel clocked a growth rate of over 36% y-o-y while Vodafone Essar had a y-o-y growth rate of over 47%. Aircel had a m-o-m growth rate of 5.52% while it achieved a growth of 103.9% y-o-y. Idea Cellular had a m-o-m growth rate of 3.77% and 49.68% y-o-y.

Vodafone Essar added the highest number of subscribers at 3.1 million while Bharti Airtel came in second with 2.9 million subscriber additions. After leading the subscriber additions for last six months, Tata Teleservices added 2.8 million subscribers in Feb-10. There was an increase in the percentage share of new additions for Reliance Communications and Idea Cellular.

Key happenings during the month

In a landmark event, Bharti Airtel signed a deal with Kuwait’s Zain Telecom to acquire most of its African assets at $10.7 billion. With Zain Africa’s 42 million customers, Bharti Airtel will have 179 million subscribers and operations across 18 countries, making it the world’s fifth-largest mobile phone company. The Africa market has high growth potential for Bharti Airtel as the region is currently under-penetrated and with its low cost outsourcing model, Bharti can turnaround the operations of Zain. The value being paid by Bharti Airtel for Zain Africa on a per subscriber basis is higher than that of Bharti Airtel itself. The deal provides Bharti Airtel an opportunity to gain an international foothold and the company will need to leverage on its famous minutes factory model to turnaround Zain’s operations. Bharti Airtel has formed two special purpose vehicles in the Netherlands and Singapore to execute the $10.7-billion deal.

Nine telecom companies have joined the fray for just three 3G spectrum slots while eleven companies have bid for broadband wireless spectrum, which will allow them to provide wireless internet services. All six of India’s largest private telecom companies; Bharti Airtel, Reliance Communications, Vodafone Essar, Idea Cellular, Tata Teleservices & Aircel have bid for 3G spectrum in all 22 circles. These six companies have also bid for BWA airwaves on pan-India basis. The base price for pan-India 3G airwaves is Rs 3,500 crore while for BWA spectrum, it is Rs 1,750 crore.

Reliance Communications became India's second telecom operator to cross the 100 million mobile subscriber mark and the 4th operator in the world to serve over 100 million customers in a single country. On March 25th, 2010 Videocon Telecommunications launched its mobile telephone services by initiating services in Tamil Nadu circle. The company plans to roll out service in other states, covering 100 cities over the next 100 days.

The Telecom Dispute Settlement and Appellate Tribunal (TDSAT) stayed the implementation of the hike in spectrum charges with effect from April over petitions filed by Bharti Airtel, Vodafone Essar and Idea Cellular. Last month DoT had announced a proposal to increase the spectrum charges by up to 50%, implying that telcos would have been charged 3-8 % of their revenues as spectrum usage fee for FY11. The implementation of Mobile Number Portability has been postponed for the third time to 30 June 2010. The reason cited by the telecom ministry for the decision was that all the networks are not ready for the implementation as per the earlier deadline of March 31st.

Valuation Ratios

After Bharti Airtel announced its bid for Zain, the share price of Bharti Airtel has remained volatile because of the mixed responses. As for other players, their share prices have been partially stable over last couple of months. However, all stocks are still trading at discount to their historical levels. Launch of 3G services by the incumbents post the auction of 3G spectrum will provide an upside in the long term.