Capex forecasts: Combination of higher subscribers growth, lower subscribers quality, lower incremental ARPU growth and MOU (minutes of use)….higher subscribers targets qualify for additional spectrum and higher capex.
Key upside risks: ability to monetize non core business like DTH, wimax wireless, broadband, or higher than expected valuation of tower business.
Forecasts for FY09: 6% decline in ARPU and MOU. 26% for overall capex.37% for FY10
The spectrum policy : spectrum allocations are fragmented with allocations on circle2circle, than operator 2 operator basis rather than through a uniform national auction system. New policy will raise subscribers targets for incumbents GSM players and new ones like RCOM. Allocations are well below intl benchmarks .Policy discourages large GSM players to further fragment spectrum resources. Lawsuit filed in TDSAT(telecom disputes settlement and appellate tribunal) and TEC(telecom engg centre ) has suggested new subscribers norms for incremental spectrum ,higher than TRAI’s -> divergent views among GSM players weaken future stand. Aircel n spice have already withdrawn from lawsuit.
TEC norms not likely to be adopted since they are mirror image of the TRAI’s and norms from TRAI will be implemented.
Players of Bharti’s league r well placed to accommodate marginal subscribers on the account of the early adopters and contract subscribers. They have managed to capture better quality subscribers on the back of their early move adv. DOT’s decision to move CDMA player RCOM to GSM sphere through a non transparent process raises real ques about politics of spectrum policy
Spectrum constrains are restricted to urban areas & unlikely to hamper rural areas. Bharti offers one of the best plays on the Indian subscribers growth story and entry of new players is unlikely to threat Bharti’s mark share.
ARPU concerns: Bharti’s strong Q results confirms that company is well placed to accommodate marginal subscribers base that will be created by its aggressive drive to tap rural & semi urban areas. Furthermore its initiatives to cut local call rates 4 lifetime may boost usage.
Bharti will have to install 18k capacity towers in case new TRAI norms are accepted-> will lead to increased data revenues. Markets are not aware of the value proposition of the capacity towers. This will lead to addional voice capacity n reduction in network congestion. It will address mobile no portability (MNP).Tower sharing is yet to come.
1. Coverage towers : installed in new region to acquire new customers
2. Capacity towers : used to handle excessive voice traffic in particular service area. They increase overall voice capacity.
Markets are over reacting to the spectrum constrains & appear to be pre-occupied with the notion of increase capex while ignoring the value proposition of the capacity towers. Significant part of new tower investments can be offset by the tower sharing. CTs will be concentrated to commercial locations. Supply side constrains such as high demand for land, high real estate prices & lower available of commercial building makes tower sharing a sense.
Improving data revenues: Bharti has been losing on this and have an opportunity to step up the data capacity by taking adv of lower network utilization (which puts upward pressure on network op costs). During high traffic it can open up its data timeslots to voice.
With RCOM entering the GSM space & MNP in the news: Globally, it suggests that MNP is most valuable to early adopters who view their no as social identity & are not tempted to by 10-15% price cuts. MNP will increase competition, expand customer choices & encourage operators to improve quality. RCOM stand to benefit from MNP.
GSM op will be allocated spectrum in 2100MHz band. Greater the freq higher the no of towers required. With the intro of the 3G services, tower req of Bharti will be twice the current no in service areas where it operated in 900MHz band and 1800MHz.
Financial impact of spectrum constrains: 18k CTs will consume $2bn in next 2 years.
- Call drops & congestion cause op to lose revenues.
- ARPU support will be available assuming it uses incremental capacity to boost data revenues.
- Churn rated expected to be lower with deployment additional capacity, reducing customer retention cost.
- ARPU decline on a/c of marginal subscribers is continue to decline but some stabilization
Bharti Tower Company (BTC) : Markets have still not completely priced in the valuations of the BTC due to lack of the sample deal as with other players. After the de merger we can expect some announcements.
Principal downside risks: possible acceptance of TEC norms, rapid drop in revenue/min, op-margin compression & derating of Indian equities.
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