Rcom unable to sustain momentum

India's wireless subscriber growth is easing sequentially from 15.63 million additions in March 2009 to 11.92 million in April 2009, which has further inched down to 11.58 million subscriber additions in May 2009. Viewed differently, still the wireless net adds are higher than FY 2009 monthly average net adds of 10.89 million.

Reliance Communication (Rcom), which has been adding more than 3 million subscribers per month till March 2009, after launching its GSM services in January 2009 when it added 4.95 million net subscribers (GSM + CDMA), could add just 2.387 million subscribers (still a recovery from 2.18 million subscribers in April 2009).

Among other Bharti Airtel has sustained its net adds at 2.81 million while that of Vodafone has slipped further with 2.54 million in May 2009 against 2.85 million in Mar'09 and 2.77 million in Apr'09. Subscriber addition by BSNL and MTNL were also down while Idea Cellular and Tata Teleservices could increase its net adds on M-o-M basis. Net adds by Aircel were also consistent and it added 1.1 million subscribers.

As per TRAI, Total 11.44 million telephone connections (Wireline and Wireless) have been added during May 2009 (11.75 million in April 2009). The total number of telephone connections reaches 452.91 million at the end of May 2009 (441.47 million in April 2009). With this growth, the overall tele-density has reached 38.88 at the end of May 2009 as against 37.94 in April 2009.

The Indian telecom sector is at a critical point as net adds are approaching peak while the competition is intensifying. The competition is to be intensified further with many new entrants waiting in line to launch their services. The tariffs in the industry are at their historical lows and also lowest in the world while the minutes of usage not increasing at that pace at which the tariffs are coming down and as a result the average revenue per user (ARPUs) for the incumbents is coming down on an ongoing basis.

Tata Teleservices (TTSL) has announced the launch of its GSM services, Tata DoCoMo by end-June, starting with South India and then in West and North. MTS (earlier Shyam-Sistema) launched its CDMA services in Tamil Nadu and Kerala in April'09 and in Chennai in May'09.

The DoT in its notification has announced that MNP (Mobile Number Portability) is to be implemented in 9 circles (Metro + Category A) by Sep'09 and in remaining circles by Apr'10. MNP is not expected to have a major impact on wireless pricing, since tariffs are already quite low. However, the new operators may try to attract customers of other operators by offering very low call rates from their existing service providers.

The incumbents are less likely to indulge themselves in price war because it will ultimately dent their profitability. MNP may tend to induce some churn in high-value prepaid and postpaid customers, who are more likely to churn for reasons of quality (network coverage and Quality of Service, billing and customer care) and brand image, not tariffs. As such, industry's SG&A cost may increase post MNP, because of the pressure to retain high value subscribers. This could lead to incremental pressure on wireless EBITDA margin.

So far, the Indian telecom operators have driven growth largely through metros and A-circle urban areas, but the challenge is to reach to the rural area. While the growth drivers for mobility are intact in terms of lower tariffs, increasing coverage and rising per capita spend, the low density of rural population spread will make it challenging to expand coverage.

Also, the Telecom minister A Raja has already indicated that he is expecting the tariffs to come down at significantly lower level and specifically targeted to bring down STD tariffs to 25 paise/minute and local call rates to 10 paise/minute in the span of next two years. Thus in the time to come the price competition will be a serious cause of concern for all the players.

Telecom Services: Subscriber addition slows down, but remains higher on y-o-y basis

With many new players waiting to launch their operations and Mobile Number Portability to be implemented shortly, the competition will intensify further.

India's wireless subscriber growth is easing sequentially from 15.63 million additions in March 2009 to 11.92 million in April 2009, which has further inched down to 11.58 million subscriber additions in May 2009. Viewed differently, still the wireless net adds are higher than FY 2009 monthly average net adds of 10.89 million.

Reliance Communication (Rcom), which has been adding more than 3 million subscribers per month till March 2009, after launching its GSM services in January 2009 when it added 4.95 million net subscribers (GSM + CDMA), could add just 2.387 million subscribers (still a recovery from 2.18 million subscribers in April 2009).

Among other Bharti Airtel has sustained its net adds at 2.81 million while that of Vodafone has slipped further with 2.54 million in May 2009 against 2.85 million in Mar'09 and 2.77 million in Apr'09. Subscriber addition by BSNL and MTNL were also down while Idea Cellular and Tata Teleservices could increase its net adds on M-o-M basis. Net adds by Aircel were also consistent and it added 1.1 million subscribers.

As per TRAI, Total 11.44 million telephone connections (Wireline and Wireless) have been added during May 2009 as compared to 11.75 million connections added in April 2009. The total number of telephone connections reaches 452.91 million at the end of May 2009 (441.47 million in April 2009). With this growth, the overall tele-density has reached 38.88 at the end of May 2009 as against 37.94 in April 2009.

The total wireless subscribers (GSM, CDMA & WLL(F)) base stood at 415.25 million at the end of May 2009. A total of 11.59 million wireless subscribers have been added during the month of May 2009 as against 11.90 million wireless subscribers added during the month of April 2009. In the wire line segment, the subscriber base has decreased to 37.66 million in the month of May 2009 as against 37.81 million subscribers in April 2009 registering a slight decrease of 0.15 million.

Total Broadband subscribers base has reached 6.40 million by the end of May 2009 as compared to 6.28 million by the end of April 2009

Individual player wise performance

Bharti Airtel regained its position as market leader and added 2.81 million subscribers with 24.3% market share in net adds. Overall the company has almost touched 100 million mark and has 99.55 million subscribers with 24% share in total wireless subscribers.

The net adds by Vodafone Essar were lower on M-o-M against 2.77 million in Apr'09 to 2.54 million in May'09 and thus exceeded from net adds by Rcom which added 2.39 million in May'09. The total subscriber base of Vodafone Essar stood 74.08 million with 17.8% of overall market share.

Rcom could add just 2.39 million subscribers in May'09 against 2.18 million in Apr'09. Though the company has increased its net adds on M-o-M basis, the company could not sustain its monthly addition pace as it started in Jan'09 with the launch of GSM operations. The monthly net adds for the company is continuously declining.

Idea's net adds improved to 1.3 million from 1.15 million in Apr'09 and its net adds share rose to 11.3% of total wireless addition. However, Idea's performance in the two metros was poor, mostly due to strong push by Aircel. Idea continued to lose subscribers in Delhi (30,645 loss in May and 48,465 in April), and its net adds growth in Mumbai declined to 30,376 (against 74,232 in April). Among other recently launched circles, Idea's net adds in Bihar were robust at 199,311 or 23.5% of the net adds in Bihar (excluding Rcom' net addition). Idea added 65,218 subscribers in Orissa (launched in April'09) and 6,066 in Tamil Nadu (launched in May'09).

Aircel added more than one million net adds for the third month in a row, driven by better performance in recently launched circles, especially in highly competitive metro circles of Delhi & Mumbai. Aircel added 99,244 subscribers (42% of net add share) in Delhi where it had launched services in March '09 and added 79,335 subscribers in Mumbai (42% of net add share) where it launched services in April '09.

The net adds by BSNL has sharply came down from 1.03 million in Apr'09 to 0.42 million in May'09 against 2.90 million in Mar'09 and 1.03 million in Apr'09. Tata Teleservices has also performed well on M-o-M basis and added 0.76 million subscribers higher from 0.61 million in Apr'09. The total subscriber base reached to 36.49 million with 8.8% market share. Tata Teleservices is ready to launch its GSM services from late June onwards, which may give a boost to its subscriber addition.

Other recent developments

Competition to intensify further

The Indian telecom sector is at a critical point as net adds are approaching peak while the competition is intensifying. The competition is to be intensified further with many new entrants waiting in line to launch their services. The tariffs in the industry are at their historical lows and also lowest in the world while the minutes of usage not increasing at that pace at which the tariffs are coming down and as a result the average revenue per user (ARPUs) for the incumbents is coming down on an ongoing basis.

With more launches and mobile number portability in waiting, competition will intensify further. Tata Teleservices (TTSL) has announced the launch of its GSM services, Tata DoCoMo by end-June, starting with South India and then in West and North. MTS (earlier Shyam-Sistema) launched its CDMA services in Tamil Nadu and Kerala in April'09 and in Chennai in May'09.

Mobile Number Portability by Sep'09

The DoT in its notification has announced that MNP (Mobile Number Portability) is to be implemented in 9 circles (Metro + Category A) by Sep'09 and in remaining circles by Apr'10. MNP is not expected to have a major impact on wireless pricing, since tariffs are already quite low.

Furthermore, with prepaid comprising over 92% of the total wireless subscriber base and already high prepaid churn (4-5% per month), bulk of the customer base is already insensitive to number change. In any case, a porting fee of Rs50-100 would be a barrier to churn for most prepaid subscribers.

However, having said that, the new operators may try to attract customers of other operators by offering very low call rates from their existing service providers. The incumbents are less likely to indulge themselves in price war because it will ultimately dent their profitability.

MNP may tend to induce some churn in high-value prepaid and postpaid customers, who are more likely to churn for reasons of quality (network coverage and Quality of Service, billing and customer care) and brand image, not tariffs. As such, industry's SG&A cost may increase post MNP, because of the pressure to retain high value subscribers. This could lead to incremental pressure on wireless EBITDA margin.

Bharti Airtel again entered in exclusive talks with MTN

Bharti Airtel has again dialed for the African telecom giant MTN, after a year when the talks between the two failed last year. The two-telecom giants have entered in to an agreement to discuss the potential transaction exclusively with one another until 31st July 2009. Under the potential scheme of arrangement, Bharti Airtel would acquire a 49% shareholding in MTN and, in turn, MTN and its shareholders would acquire an approximate 36% economic interest in Bharti Airtel (25% by MTN and 11% by MTN shareholders).

Both the companies are leader in their respective emerging markets. While Bharti Airtel is market leader in India with more than 100 million telecom customers and USD 7.25 billion revenue for FY09, MTN also has more than 100 million telecom subscriber having its operations in 21 countries across Africa and Middle East and revenue of USD 12.06 billion for CY08.

Outlook

So far, the Indian telecom operators have driven growth largely through metros and A-circle urban areas, but the challenge is to reach to the rural area. While the growth drivers for mobility are intact in terms of lower tariffs, increasing coverage and raising per capita spend, the low density of rural population spread will make it challenging to expand coverage.

The cost benefit analysis for rural coverage is not so encouraging as the cost of rural coverage is significantly higher than in urban areas while the usage in rural areas would be lower. Further the subscriber growth from rural areas will likely become irrelevant for financial performance of telcos in the wake of high growth being driven by aggressive promotional plans, which will increase the churn and strain ARPUs.

Many new players are at final stage of launching their telecom services, which will intensify the already stiffed competition. Further the MNP will put pressure on incumbents to retain customers resulting in pressure on margins. The Telecom minister A Raja has already indicated that he is expecting the tariffs to come down at significantly lower level and specifically targeted to bring down STD tariffs to 25 paise/minute and local call rates to 10 paise/minute in the span of next two years. Thus in the time to come the price competition will be a serious cause of concern for all the players.

Wireless Telecom Service subscribers:  On Aggregate Basis (Players and Operating Circles wise)

Wireless Telecom Service subscriber addition: Players (Operating Circles)

Total wireless Subscriber base