Morgan Stanley Report.
MORGAN
STANLEY
RESEARCH
ASIA/PACIFIC
Morgan Stanley India Company Private Limited+
Vinay Jaising
Vinay.Jaising@morganstanley.com +91 22 2209 7780
Surabhi Chandna
Surabhi.Chandna@morganstanley.com +91 22 2209 7149
May 20, 2010
Industry View In-Line
India Telecommunications
3G Auctions Done; Upgrade Industry to In-Line
What's Changed
Industry View: India Telecommunications Cautious to In-Line
We upgrade our view on the India telecom industry to In-Line for three reasons: 1) The 3G auction is behind us; 2) tariff wars seem to have subsided; and 3) the F4Q10 results surprised us as they show revenue growth driven by higher minutes of usage (MOU). The 3G auction concluded at the end of day 34 of the bidding and 183 rounds. The overall license fee stands at Rs168bn (US$3.6bn), up 379% from the reserve price of Rs35bn (US$755mn). Bharti, Aircel, and RCOM won 3G bids in 13 circles each, Idea won in 11 circles, and Vodafone and Tata won in 9 circles each. We estimate the government could raise ~Rs921bn (US$20bn) from the 3G and BWA auctions or 1.2% of the country’s GDP. Tariff wars behind us: In the five months since the launch of “per-second billing” by Tata and the “Simply Reliance” plan by Reliance Communications (which lowered all tariffs by 30%), we have not seen any further reductions in tariffs in new launches. Most of the players now have similar tariff packages. Hence, there is not much differentiation for a consumer to choose one operator over the other, barring nationwide footprint and service. However, post-paid tariffs are still costlier than pre-paid tariffs, and we expect them to fall in the next quarter. Higher MOUs drive F4Q10: The group posted revenue growth of 1.7% QoQ; and absolute EBITDA stopped falling. The growth was driven by overall minutes, which rose 11% sequentially and over 30% YoY. Capex fell to 15-20% of sales; down from over 30% YoY.
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STANLEY
RESEARCH
ASIA/PACIFIC
Morgan Stanley India Company Private Limited+
Vinay Jaising
Vinay.Jaising@morganstanley.com +91 22 2209 7780
Surabhi Chandna
Surabhi.Chandna@morganstanley.com +91 22 2209 7149
May 20, 2010
Industry View In-Line
India Telecommunications
3G Auctions Done; Upgrade Industry to In-Line
What's Changed
Industry View: India Telecommunications Cautious to In-Line
We upgrade our view on the India telecom industry to In-Line for three reasons: 1) The 3G auction is behind us; 2) tariff wars seem to have subsided; and 3) the F4Q10 results surprised us as they show revenue growth driven by higher minutes of usage (MOU). The 3G auction concluded at the end of day 34 of the bidding and 183 rounds. The overall license fee stands at Rs168bn (US$3.6bn), up 379% from the reserve price of Rs35bn (US$755mn). Bharti, Aircel, and RCOM won 3G bids in 13 circles each, Idea won in 11 circles, and Vodafone and Tata won in 9 circles each. We estimate the government could raise ~Rs921bn (US$20bn) from the 3G and BWA auctions or 1.2% of the country’s GDP. Tariff wars behind us: In the five months since the launch of “per-second billing” by Tata and the “Simply Reliance” plan by Reliance Communications (which lowered all tariffs by 30%), we have not seen any further reductions in tariffs in new launches. Most of the players now have similar tariff packages. Hence, there is not much differentiation for a consumer to choose one operator over the other, barring nationwide footprint and service. However, post-paid tariffs are still costlier than pre-paid tariffs, and we expect them to fall in the next quarter. Higher MOUs drive F4Q10: The group posted revenue growth of 1.7% QoQ; and absolute EBITDA stopped falling. The growth was driven by overall minutes, which rose 11% sequentially and over 30% YoY. Capex fell to 15-20% of sales; down from over 30% YoY.
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