Wireless broadband bids may hit Rs 5,500 cr

BWA bidders eyeing LTE and 4G

Bhaskar Hazarika

New Delhi: With 11 companies filing for pre-qualification in the auction of the only two available slots of broadband wireless access (BWA) spectrum in each circle, the price bids could see stiff contest.

According to an ABN Amro equity research report, “Participation by global players like Qualcomm could intensify the BWA bidding. The higher competition could drive the BWA bid price to $1.2 billion (Rs 5,500 crore).”

This will be way above the reserve price of Rs 1,750 crore that the government has fixed.

According to the report, of the 11 pre-qualification applicants, seven are existing holders of the unified access service licence and internet service provider licence.

“Unlike in 3G, we expect bidders to take a pan-India approach, given the nascent market. While we estimate the BWA spectrum final bid at $1.1 billion to $1.2 billion, factoring in high competition, we do not rule out irrational bidding,” the report says

“The reason could be the participation of global players such as Qualcomm,” the report says. ‘Non-serious’ players may bid with a view to eventually monetising the licence or spectrum, it adds. The ABN Amro report says it has assumed four to five ‘serious’ bidders in each BWA circle.

The seven existing licence holders are Bharti Airtel, Vodafone, Reliance Communications, Idea Cellular, Tata Communications, Aircel and Tikona. The four new players that want to enter the filed are Qualcomm, Spice, Augere Mauritius and HFCL.

The auction of the BWA spectrum will be held on two days after the completion of the 3G auction. A senior official of the DoT said,“It is an unusual phenomenon. We did not expect such intense competition in BWA. The interest surpasses that shown in 3G.” He added that the BWA spectrum was efficient for long-term evolution and 4G services. Through BWA, operators would be able to offer high- speed wireless data services. Should the government allow voice-over-internet protocol (VoIP) or internet telephony, operators could use BWA to offer voice services as well. For BWA services, DoT will auction radio frequencies in the 2.3 GHz band unpaired and in blocks of 20 MHz. Sistema Shyam Teleservices president and chief executive Vsevolod Rozanov said that his company, as a new player, was not looking into 3G or BWA. “However, we see BWA as a business potential for India,” he said.

© Financial Chronicle

Price war to infect post-paid and international roaming charges

S Tel and Uninor garner substantial subscriber addition in January

Bhaskar Hazarika & Sanjeev Sharma

New Delhi: The price war sparked by new entrants like S Tel and Uninor in prepaid rates, that has helped them garner a substantial number of subscribers, may now be looming on the postpaid rates, corporate connections, wireless data, international roaming and SMS.

According to analysts, competitive pricing is likely to spread. The director for telecom at KPMG, Romal Shetty, said that the short term would be difficult for the operators but positive growth was possible in the long term.

"We will next see a fall in tariffs of other services such as international roaming, data services and postpaid," Shetty said. In January mobile operators added 19.9 million subscribers. Vodafone added 2.74 million, Bharti Airtel 2.85 million and Tata Teleservices 2.98 mil- lion.

On the other hand, S Tel added 3,64,000 in three circles and Uninor 1.33 million in eight circles.

According to a Macquire equities re- search report, "A further ramp-up and rollout of services by greenfield entrants will likely lead to a further cut in prepaid rates. The report says that as greenfield op- erators Uninor and S Tel ramp up their GSM services, competition will intensify, hurting the revenue market share and profitability of older GSM operators.

Industry net additions, says the report, reached 13.9 million, helped by a ramp-up by the newcomers, with Uninor capturing 33 per cent of the net additions in its eight circles and S Tel cornering 20 per cent in January.

Uninor's executive vice- president of corporate af- fairs, Rajiv Bawa, said that in a market this competitive, there was bound to be price competition in all telecom products. "But our view also is that a differentiation based only on pricing is always shortlived. It will last only as long as the next lower offer. A long- term dif- ferentiation has to be based on much more  better cus- tomisation of the product for distinct consumer needs and an overall focus on quality of service," he said.

"For Uninor, it is much more than how many paise are raised every second," he added.

Commenting on the pressure of margins on oper- ators, Bawa said, "Some op- erators look at subscriber additions at any cost. Others look at a low-margin, high- volume play. Then some others seek to deliver the lowest costs, but to a certain kind of customer. Irrespec- tive of the approach, howev- er, it is clear that the tele- com sector requires a long- term commitment and long- term business ambition.And the model must make for a sound business case."

The CDMA operators lobby, Association of Unified Service Providers of India's secretary-general, S C Khanna, said the market was under pricing pres- sures. "However, we do not see further cuts, but there will be competitive offers and packages for cus- tomers," he said.

The chief corporate officer of Idea Cellular, Rajat Mukarji, said, "We are in a hyper competitive market. But this is not sustainable in the long term for new opera- tors, as they do not have the coverage others have. Serv- ices such as wireless data are niche segments not mass subscriber services. It is difficult to forecast if the competitive pricing will enter these segments."

The CEO of S Tel, Shamik Das, was not avail- able for comment. Bharti Airtel and Vodafone did not respond to the calls made by Financial Chronicle.

© Financial Chronicle

Analysis: Incumbents operators fight back competition

If government auctions spectrum beyond 4.4 MHz, it will seriously dent DoCoMo

Bhaskar Hazarika & Sanjeev Sharma

New Delhi, February 14: After the bearing the burnt in the in the third quarter revenues, incumbent operators have started to fight back the competition from new entrants.

The entry of new players in to the telecom space, saw introduction of aggressive tariff plans from in the third quarter 2009, forcing incumbents to introduce per second billing plan. Citigroup report states, “Tata DoCoMo in its five initial circles has captured 100-280 basis points revenue share since launch. Even Mumbai & Maharashtra, launched in August, has witnessed an improvement. However given incumbents have now replicated DoCoMo’s offering, this success may not be easy to replicate going forward. If Department of Telecom decides to auction spectrum beyond 4.4 MHz, it will seriously dent DoCoMo’s ability to launch full-fledged in the rural areas.”

The report states that, while new launches have gained revenue share at the expense of incumbents, who were initially reluctant to cut tariffs, all of them have now matched the lower tariffs of the new competitors. Operators such as Vodafone and Idea, who had been more proactive, at least in their new launches, have shown healthy growth, while Bharti, which cut tariffs only in November, witnessed a quarter-on-quarter revenue decline.

Managing director, Tata Teleservices, Anil Sardana said, “If you see our revenues it is increasing. On the pressure on margins for the industry innovation is the step ahead.”

Analysts state that with the overall industry revenues grew marginally (0.6 per cent) in third quarter, Bharti’s revenues declined by 2.1 per cent quarter-on-quarter (1.7 per cent in second quarter), bearing the brunt of the heightened competition with 40-480 basis points revenue share loss in 14 of the total 22 circles. The bulk of the loss occurred in DoCoMo’s five initial launched circles, which contributed ~60 per cent to Bharti’s quarter-on-quarter revenue decline. Citigroup report states Bharti however should regain some lost ground in fourth quarter, given its new tariffs were launched only in November.

“Idea and Vodafone managed to reverse the declining trend with 5.5 per cent and 2.6 per cent revenue growth. While new launches explain the bulk of the growth, they also managed to recapture some revenue share in their core incumbent circles (such as Vodafone in Gujarat, Idea in Kerala and Gujarat). Meanwhile Aircel’s revenue growth at 10.5 per cent was highest amongst all operators. Rcom’s revenue was at 1.7 per cent.

© Time

Quick Preview: Tariff war scars to show in top lines of telecom firms Q3

Strong traffic growth may help companies post moderate growth

Bhaskar Hazarika & Sanjeev Sharma

Incumbent telecom companies are likely to witness moderate growth in revenues supported by strong traffic in the third quarter. Analysts have forecast a trend reversal in minutes of usage for incumbent operators while a slight appreciation in rupee will support their performance at the PAT (profit after tax) level.

The Citigroup report said, "Bharti and Rcom should benefit from a slightly appreciating rupee. In Rcom's case, depreciation charges will be higher quarter-onquarter as GSM capex gets capitalised and the second quarter had the adjustment of depreciation change."

With the entry of new players into the telecom space, the industry saw fragmentation in minutes of usage of incumbent operators. More telecom players in each circle and introduction of one-paise per-second billing have resulted in stiff competition, putting lot of pressure on margins.

"We forecast wireless revenues for GSM incumbents (Bharti and Idea) to grow 1 per cent to 3 per cent quarter-on-quarter aided by strong traffic growth. The encouraging traffic trend is also likely to limit EBITDA margin pressures, which will mean the overall EBITDA will remain flat," said the report. The report forecasts a drop in estimated revenue per minute for pure GSM operators. "The decline for Idea could be more compared with Bharti given aggressive tariff cuts, especially in new circles.

Rcom's revenue per minute decline is also likely to get impacted due to tariff cuts announced at the beginning of the quarter," the report stated. KPMG executive director Jaydeep Ghosh said the payper-use tariff is likely to have an impact on the top line for incumbent operators in the third quarter. He said competitive packages offered by the telcos are a matter of concern. "We see a healthy trend in the minutes of usage. However, for new operators we see a challenge in the uptake of subscribers.

For incumbents, there will be a challenge in maintaining the revenue and top line," Ghosh said.

An Angel Securities report says, "Bharti Airtel, Rcom and Idea Cellular are likely report subdued top line growth to the tune of 3 per cent year-on-year and 1.4 per cent quarter-onquarter during the third quarter. We expect Bharti Airtel to report 3.4 per cent YoY in net revenues. Rcom is expected to clock 0.5 per cent YoY de-growth in net revenues.

© Financial Chronicle

NY Special: What if India leapfrogs to 4G?

Bhaskar Hazarika

New Delhi: India has already missed the bus to launch third-generation (3G) mobile services in the country. But this could be a blessing in disguise for the mobile operators if India leapfrogs to fourth-generation (4G). According to industry experts, Indian operators can move forward to 4G without rolling out 3G services. This could be another instance when India’s neighbour Pakistan is planning to leapfrog to 4G services.

Globally number of countries is testing 4G on the network after implementing 3G on the network. However, for India we are yet to log on to the third-generation services. Leapfrogging to 4G would prove to be a technology advantage for operators, since the 4G technology is 10 times spectral efficient compared to 3G. The 3G frequency bands identified by the ministry of communications and IT are compatible to roll out 4G services.

Joint secretary, department of telecom (DoT), JS Deepak said, “4G frequency bands or Long Term Evolution (LTE) is under consideration with DoT and Wireless Planning and Coordination (WPC). The ministry is carrying out a study on the 700 MHz frequency band if it could be used for WiMax or fourth generation (4G) services.” It should be noted that the government has taken a ‘technology neutral stand’ on the spectrum to be allocated for 3G services. This could be the first initiative from the government to open a window towards the 4G space.

Long Term Evolution (LTE) version 10, which is considered to be 4G, is being designed and will be available by the end of 2010. The present day LTE under implementation is considered as 3.9G. Since the spectrum for 3G will be available for private telecom operators by August 2010, it would be the right move for India to go for 4G, as the equipments for 4G will be available by the end of 2010. Union minister for communications and IT, Andimuthu Raja clearly stated, “Allotment of spectrum to maintain level playing field will be allotted to the successful bidders by August 2010.”

According to telecom expert and former advisor of Telecom Regulatory Authority of India (TRAI), Satyen N Gupta India should leapfrog to 4G and skip 3G, as there has been delay in the auction of spectrum. Gupta said that time is ripe for India to directly move to 4G. “Government and the regulator should be technologically agnostic while allocating spectrum. There should be no mandate that the proposed 3G spectrum should be used only to roll out 3G services. The operators should be given freedom to offer either 3G or 4G services,” Gupta said.

He said that the existing 3G frequency bands, which the government is planning to auction is compatible to offer 4G services. All the 3G frequency bands, which are under International Mobile Telecommunications (IMT), can be used for 4G. The Indian government has identified frequency bands in the 1.9 GHz to 2.1 GHz for auction.

Chief corporate affairs officer, Idea Cellular, Rajat Mukarji said that moving to 4G is a desirable direction… Yes, 3G can be leapfrogged. “We have been talking about 3G for more than 3 years and may be it has lost its meaning. Moving to 4G is a logical direction. We talk about mobile broadband but we should know that it is critical for the country. From the existing 2.5G to 4G is a quantum jump, but on thing that should be noted that it will be expensive to roll out 3G services at this point,” he added.

According to ABI research, the total number of 4G subscribers worldwide, including both LTE and WiMAX, is expected to exceed 90 million in 2013.

What is 4G?

4G technology is sometimes referred as ‘MAGIC,’ --- Mobile multimedia, Anytime-anywhere, Global mobility support, Integrated wireless and Customized personal service.

4G has three major characteristics: The download speed is 100 megabytes per second; It is based on internet protocol technology; Ubiquity as it is interoperable with the lower generation technologies. The distinctive quality of 4G networks is likely to use a combination of WiMAX and WiFi. The International Telecommunications Union (ITU) and The Institute of Electrical and Electronics Engineers (IEEE) have identified that 4G will have data download speed of 100-mega bit per second and it is completely based on IP technology.

© Financial Chronicle

Multiple SIM usage to impact top line margin for telcos

Bhaskar Hazarika & Sanjeev Sharma

New Delhi, December 20: The increasing usage of multiple SIMs will have an adverse impact on the revenue of operators in the long-term. With dual and three SIM phenomenon there will be a fragmentation in the minutes of usage on the operators.

According to a Macquarie report, “Subscribers take-up activity is becoming increasingly irrelevant, with dual and three SIM phenomenon increasingly visible. Minutes of usage fragmentation across multiple SIMs from different operators will pressure telcos top line.”

According to data from the Cellular Operators Association of India, GSM operators (excluding GSM SIMs for the two large CDMA operators Reliance Communications and Tata DoCoMo) added 11.1 million SIMs in November. In October the GSM operators added 10.3 million SIMs, 8.6 million in September, 9.3 million in August.

President of Indian Cellular Association, Pankaj Mohindroo said that there has been significant increase in the number of multiple SIM usage among the subscribers. “According to industry estimates the dual SIM card handset users in the market is around 25 million. If you take in to account the Delhi circle there are 25 million subscribers compared to the total population of 17 million. This clearly states that the number of SIM cards has surpassed the total population,” he said.

Chief corporate affair officer of Idea Cellular, Rajat Mukherji told Financial Chronicle that multiple SIM usage is witnessed predominantly in the circles where the tele-density is relatively higher. “The premium markets are witnessing the growth of multiple SIMs. However, there is a clear distinction between the voice and the non-voice segment. When an individual uses two SIM cards, he makes clear distinction in his usage pattern --- one for voice usage and the other for data, vas services,” he said.

Mukherji added that a lot of BlackBerry subscribers have their second phone, which is used primarily for calling. “Since the tariffs are already low for almost all the operators, we do not see any tariff arbitrage in this case. This is an industry wide phenomenon, which all the operators are likely to face,” he added.

Emails sent across to Vodafone, Bharti Airtel and Aircel did not elicit any response.

With cloud of uncertainty hovering over the mobile number portability (MNP), the consumer is left with no other option than to get an additional SIM card for his use. It may be noted that the existing SIM card continues to be under usage, only to retain the number. Mobile number portability was earlier slated to be launched on December 31, but has been deferred by three months. The operators have expressed their inability to launch the service stating that the implementation of the service is not complete.

© Financial Chronicle