By Nirmal Bang

Continuing with the robust growth witnessed over the past year, Indian Telecommunications sector saw a record addition of 17.6 million subscribers for the month of November 2009. The number of telecom subscribers in India increased to 543.2 million at the end of November-09 from 525.65 million in October-09. This reflects a growth rate of 3.34% which surpassed the growth witnessed any time in the current fiscal. This increased the overall Tele-density of India from 44.87% to 46.32%.

The increase in the subscriber numbers was led by wireless segment which saw the subscription figures increase by 17.65 million. Wireless subscriber base increased from 488.4 million in October-09 to 506.04 million at the end of November-09 at a monthly growth rate of 3.61%. Wireless Tele-density now stands at 43.15%. The number of subscribers for wireline segment continued to fall from 37.25 million in October-2009 to 37.16 million at the end of November-09. With a reduction of 0.09 million subscribers in the wireline segment, Tele-density declined to 3.17% at the end of November -09 as against 3.18% in October-09.

Bharti Airtel continues to hold the leadership position with over 119 million subscribers. Reliance Communications consolidated its position as the second biggest player in terms of subscriber base by addition of 2.8 million subscribers. As against 88.9 million subsricbers of BSNL, Reliance Communication ended the month of November-09 with 92.15 million subscribers. Reliance Comm. has achieved a growth rate in excess of 3.1% month-on-month while having a share of around 16% in the monthly net additions. On the other hand, BSNL has been losing customer base because of the decline in the wireline segment which forms over 31% of BSNL’s subscriber base.

Vodafone Essar clocked a growth rate of 3.24% while having a share of over 15.8% in the monthly subscriber additions. Vodafone Essar is inching closer to BSNL in terms of subscriber base, lacking by only 0.39 million subscribers as compared to BSNL. Tata Teleservices added 3.35 million subscribers in November-09, the highest compared to any other players. It achieved a share of 19% in new subscriber additions but it is lower than the additions witnessed by the company in terms of percentage addition in past couple of months. Aircel with its operations in 17 circles have been steadily growing its subscriber base at a growth rate of more than 5.8%. Sistema Shyam Teleservices, a relatively new player with a presence in 9 circles has been clocking a healthy growth rate in excess of 13% over the past year.

Category A and B circles continue to dominate subscriber additions, adding 13.05 million subscribers i.e., over 74% of industry net additions.

Indian telecommunication industry saw the eruption of price war after the launch of per second billing and pay per call plans launched by TATA Teleservices to capture the market share from the incumbent players.

Market leaders like Bharti Airtel and Reliance Communication followed in by launching competitive plans to combat the increasing competition from the new operators. This price war has further intensified by the launch of schemes like half paisa per second by Sistema Shyam Teleservices and MTNL. Currently India is the fastest growing telecom market in the world having the lowest tariff. Though incumbents are in a better position to sustain these margin pressures, new operators will find it tough and will ultimately result in consolidation in the industry.

All India Wireless Subscriber Base

Over the past three months, wireless segment has witnessed an increasing addition of subscribers every month while adding record 17.6 million wireless subscribers in November 09. But the rate of growth has slowed down as compared to the addition in the start of 2009 where the growth rate was close to 4% in comparison to 3.3% for the last quarter.

All India Wireline Subscriber Base

The falling tariffs of the wireless services and the convenience of mobility which cellular services provide has caused more and more subscribers opting out of fixed line services. Over the last year, wireline segment has seen a reduction of over one million subscribers. Because of this, state owned operators BSNL and MTNL has been consistently losing their market share as wireline forms a substantial portion of their subscriber base.

Bharti Airtel maintains its market leadership position with a market share of 21.9%, but has been losing its market share over the past few months. Over the period Tata Teleservices has been gaining market share at the cost of state owned operators BSNL and MTNL. Vodafone Essar is inching closer to BSNL in terms of market share.

All India Subscriber Base (Includes Wireless and Wireline)

Bharti Airtel maintains its leadership position but has lost market share over the last quarter. Vodafone Essar is inching closer to BSNL in terms of market share. On the other hand Tata Teleservices has caught up really fast with Idea Cellular.

Operator wise Wireless Subscriber Base (millions)

Market Leader Bharti Airtel clocked a growth rate of over 40% y-o-y. On m-o-m basis, Tata Teleservices had a growth rate of over 6.5%, supported by tariff schemes like per second billing & pay per call. Reliance Communication has consistently improved its m-o-m growth rate of subscriber base, achieving over 3.2% for November 09.

Operator Wise Wireless Net Additions (millions)

Inspite of adding the highest number of subscribers in November-09, Tata Teleservices saw a reduction in its share of net additions from 23.2% in Oct-09 to 18.9% in Nov-09. Bharti Airtel got a slightly higher share in new subscriber additions over the period while Reliance Communications saw a jump of over 3% in its share of additions. On the other hand, Vodafone Essar had a declining growth rate.

Performance Indicators

Over the last year, major chunk of new subscriber additions have been from the Circle C and rural areas characterized by low usage customers. This along with the falling tariffs due to the ensuing price war has resulted in declining average revenue per user as well as minutes of usage per user. The average realized rate has fallen from Rs. 0.64/min to Rs. 0.56.min which is putting further pressure on the margins and profitability.

Valuation Ratios

The stock prices of all telecom companies have partially recovered after they plunged in the month of November following the tariff war and increasing competition. However, still the telecom stocks are trading at a huge discount to their historical levels. Going forward we expect the stocks to continue to trade at lower PE multiples due to anticipated decline in profitability