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.

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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.

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