Active users data show new telecom companies’ troubles

After being in trench warfare with freshly ground competition from 2008-09, Indian mobile telephony operators such as Bharti Airtel, Vodafone and Idea Cellular may now be ready to blow their victory horns.

Older telcos, or the incumbents in the fight, have a far higher proportion of active subscribers — in the 80-100% range — as against 30-60% for newer operators such as Videocon, Etisalat, Sistema Shyam and Uninor, latest data from Telecom Regulatory Authority of India (TRAI) show.

The message is loud and clear, analysts say, as the data show that subscribers with multiple mobile connections prefer incumbents to new-comers.

Exception is Uninor, the joint venture between India’s Unitech and Norway’s Telenor, which operates in 13 circles and has about 27million subscribers.

Idea’s active base at 93% is the highest in the industry with Bharti close behind at 90%, while 61.3% subscribers were active for new-comer Uninor, which by that matrix is just one percentage point behind Reliance Communications (RCom), India’s fourth-largest mobile telephony operator by revenue market share.
Incumbent telcos themselves, however, are dancing around this positive conclusion with nimble feet. Even as they have made a bold move by raising call tariffs by 20% recently, the operators aren’t sure if the recent raises are sustainable.

In their recent conversation with telecom analysts from foreign brokerage Nomura, senior executives at the Indian operations of Vodafone said that the recent tariff hikes might last for about 3-6 months but beyond that they weren’t too sure about the sustainability of the higher call rates.

“The competitive landscape looks stable and the company does not expect any change here over the coming quarters,” Sachin Gupta, Neeraja Natarajan, Pankaj Suri and Gopakumar Pullaikodi of Nomura Securities said in a recent note. With Indian cities getting saturated with mobile phones, as indicated by mobile teledensity of nearly 160%, the emphasis has shifted from merely adding new subscribers to raising revenue from individual subscribers — a game where the incumbents will have an advantage as they have the premium service, high speed third generation, or 3G, in their portfolio.

Most newer operators, except RCom and Tata Tele, do not have licence and spectrum to offer 3G services.

An intense tariff war marked competition in the last two years and that may now be spreading to 3G. If it was Idea Cellular that first doubled the data limit in 3G plans, thus indirectly slashing data rates, Reliance Communications followed suit in a matter of weeks trebling the data limit on their 3G plans. Objective is to gain subscribers and achieve scale in 3G operations, sooner than rivals.

Even as 3G ecosystem and revenue models evolve improving competitive dynamics overall will likely help drive better performance of the sector stocks, analysts believe.

“Both Idea and Bharti have done well on the back of improving business; outperforming (the index) 56% and 30% respectively,” Gaurav Malhotra and Ravi Sarathy, analysts at Citigroup, said. “We believe that the recent evidence of return of pricing power should help continue to support stock performance.”

Bharti Airtel stocks shed 3.58% fell while Idea Cellular gained 2.3% on the Bombay Stock Exchange, which fell 2.2% on
Monday.