MNP EFFECT Part II. Telecom. Early Rumblings, but not Earth Shaking!

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1 INDIA Institutional Research Telecom MNP EFFECT Part II Early Rumblings, but not Earth Shaking! Date: 25 th February, 2011 Siddharth Deshmukh Tel No.: After facing lots of delays and hurdles, Mobile number portability (MNP) is now a reality with pan India presence from 21 January As we mentioned in our earlier note "THE MNP EFFECT", MNP is supposed to be impacted by mostly few factors like Tariff, Network quality, 3G & Value added services (VAS) and Customer helpline services and it will benefit those who are capable of providing such services. Though, it has been observed through initial numbers from Haryana that only Incumbents who are offering fine quality of network, good tariffs, range of customer facilities and undergoing high MNP branding are gaining much demand in the market as compared to others. In future we expect MNP will put pressure over the industry to some extent due to increase in competition among players. Hence we expect to see some strain on revenues due to competition arising between players through new special offers (tariff based) for MNP applicants. Similarly, margins will be impacted due to down fall in revenues, high cost for acquiring new and retaining existing customers and additional pressure due to loss of high end customers. If we check the Initial MNP figures given by operators to DoT for Haryana circle (comprising 11 operators and subscriber base of over 19 mn), it shows that during initial days (after MNP was launched on 25 November 2010 in Haryana) more than 90,000 subscribers have applied for MNP and out of which Vodafone is the biggest gainer while biggest losers were BSNL, Rcom The overall figures (for 7 operators) are as follows: Initial Mobile Number Portability Churn In Haryana Circle (Till 5 th Dec 2010) Operator Port In Port Out Net Gain/Loss BSNL (GSM) 5,302 25,805 20,503 Reliance Com (GSM) 988 8,888 7,900 Reliance Com (CDMA) 192 6,003 5,811 Tata Tele (CDMA) 725 7,915 7,190 Tata Tele (GSM) 16,107 6,811 9,296 Vodafone (GSM) 30,015 9,297 20,748 Airtel (GSM) 18,271 10,837 7,434 Idea Cellular 13,741 15,604 1,863 Aircel 10,608 1,279 9,329 Exhibit 1: Port In Exhibit 2: Port Out (In 000's) 30,000 25,000 20,000 15,000 10,000 5,000 0 (In 000's) 30,000 25,000 20,000 15,000 10,000 5,000 0 BSNL (GSM) Reliance Com (GSM) Reliance Com (CDMA) Tata Tele (CDMA) Tata Tele (GSM) Vodafone (GSM) Airtel (GSM) Idea Cellular Aircel BSNL (GSM) Reliance Com (GSM) Reliance Com (CDMA) Tata Tele (CDMA) Tata Tele (GSM) Vodafone (GSM) Airtel (GSM) Idea Cellular Aircel Source: Company, Networth Research Source: Company, Networth Research Networth Research is also available on Bloomberg and Thomson 1

2 Pan India MNP Data (Till 31 st January 2011): Similarly, on basis of initial data of MNP provided by operators during first 10 days after pan India MNP launch (on 20 January 2011) we observed the same trend as in case of Haryana but with a large gain in numbers for Vodafone, Idea and Aircel, while Airtel registered slight gain and rest of the incumbents like RCom, Tata BSNL and other new entrants are badly affected. The complete data is as follows: Portability Data for pan India ( up to 31st January 2011) Service Provider Port In Port Out Net Gain/Loss Vodafone Essar Idea Cellular Bharti Airtel AIRCEL BSNL Reliance Com CDMA Reliance Com/RTL GSM Tata Indicom CDMA Tata Docomo GMS MTNL (Delhi Mumbai) Loop Mobile (Mumbai) Videocon HFCL (GSM Videocon Punjab) Ping Mobile MTS India (SSTL CDMA) Etisalat DB (Cheer Mobile) Uninor Stel Exhibit 3: Port In Exhibit 4: Port Out (in 000's) Vodafone Essar Idea Cellular Bharti Airtel AIRCEL BSNL Reliance Com CDMA Reliance Com/RTL GSM Tata Indicom CDMA Tata Docomo GSM MTNL (Delhi Mumbai) Loop Mobile (Mumbai) Videocon HFCL (GSM Videocon Ping Mobile (HDCL CDMA) MTS India (SSTL CDMA) Etisalat DB (Cheer Mobile) Uninor Stel (in 000's) Vodafone Essar Idea Cellular Bharti Airtel AIRCEL BSNL Reliance Com CDMA R eliance Com GSM Tata Indicom CDMA Tata Docomo GSM MTNL (Delhi Mumbai) Loop Mobile (Mumbai) Videocon HFCL (GSM Videocon Ping Mobile (HDCL MTS India (SSTL CDMA) Etisalat DB (Cheer Uninor Stel Source: Company, Networth Research Source: Company, Networth Research Factors Affecting MNP: We already mentioned in our earlier report about the key factors which are responsible for MNP churn and out of all those factors we expect that Quality of service, Tariff Offers, Customer helping service and 3G/VAS to be the key role player, also in future these factors will remain in same pattern. On evaluation of the initial days MNP data we discerned the following factors, supporting for current MNP trend: 2

3 Performance of operators (in few circles) based on parameters: Table.1 Network Accessibility Connection Maintenance Worst affected BTS due to downtime circle wise (in %) % of call made by subscribers and successful % of call drop due to within operator network (circle wise) network problem (circle wise) % of calls with good voice quality(circle wise) Benchmark 0% ( )% (1.1 2)% (99 100)% (96 98)% ( 95)% ( )% (1 2)% (99 100)% (96 98)% (95)% Good Satisfactory Worst Good Satisfactory Worst Satisfactory Worst Good Satisfactory Worst Operator Mumbai Haryana Assam Rajasthan Haryana Assam Haryana Punjab Punjab Rajasthan Assam Punjab Karnataka Punjab Orrisa Mumbai Rajasthan MH& Goa Orrisa MP Rajasthan M.P. Chennai Delhi Mumbai Karnataka Chennai Delhi Karnataka Haryana TN Chennai Delhi Karnataka MP, TN Airtel MP, TN Delhi Orrisa MH& Goa TN MH& Goa MH& Goa Mumbai Assam Chennai Orrisa Haryana Assam Haryana Chennai Assam Punjab Haryana Orrisa Punjab Punjab MP Punjab Delhi Orrisa Chennai Orrisa Rajasthan Rajasthan Karnataka Rajasthan Karnataka Delhi Haryana Chennai MP Karnataka TN MH& Goa Mumbai Orrisa MH & Goa Mumbai MP MH& Goa Mumbai TN Orrisa Vodafone MH& Goa Assam Karnataka Rajasthan TN, MP Mumbai Delhi Chennai Assam TN Haryana MP Haryana MP, TN Chennai Haryana Chennai Punjab MP Rajasthan Punjab Punjab MH & Goa Delhi Orrisa Haryana MH& Goa Chennai Delhi Rajasthan MP,TN Mumbai Karnataka Chennai MH& Goa Rajasthan Idea # Mumbai MH& Goa Delhi Rajasthan Delhi Karnataka Mumbai Karnataka Mumbai Punjab TN Karnataka Punjab Delhi Haryana Haryana Assam Punjab MP, TN Delhi Punjab Rajasthan Karnataka Assam Punjab Chennai Rajasthan MH& Goa Mumbai Orrisa Chennai Orrisa Delhi Assam Haryana Karnataka Haryana MP, TN Mumbai Karnataka Delhi Orrisa Rajasthan R Com MH& Goa MP, TN Karnataka Chennai MP, TN (GSM/ CDMA) Mumbai Assam Orrisa Mumbai MH & Goa MH & Goa Tata (GSM /CDMA) Aircel ## BSNL /MTNL * Haryana Assam Haryana Karnataka Punjab Chennai Punjab Rajasthan Punjab Delhi Punjab Rajasthan Mumbai Assam Delhi Rajasthan MP Rajasthan Assam Orrisa TN MP Chennai Chennai Delhi Haryana MH& Goa Haryana Delhi Orissa Karnataka Mumbai Rajasthan Karnataka Mumbai TN MP, TN Chennai MP, TN MH & Goa Orrisa MH & Goa Karnataka Orrisa Mumbai MH & Goa Delhi TN Assam Chennai Delhi Assam Assam Mumbai Assam Orrisa Chennai MH & Goa Karnataka Delhi Orrisa Orrisa Mumbai Karnataka Orrisa Karnataka TN Karnataka MH& Goa TN Chennai TN Mumbai Mumbai Delhi MH & Goa Chennai MH& Goa Haryana Punjab Orrisa Rajasthan Haryana Assam Punjab Punjab MP Chennai Mumbai Rajasthan Chennai Punjab Chennai Rajasthan Rajasthan Orrisa Assam Delhi Assam Mumbai Delhi MH& Goa Karnataka Karnataka MP Karnataka Mumbai Haryana MP, TN MP, TN Karnataka TN Orrisa Mumbai MH & Goa Delhi MH& Goa Chennai TN Delhi Assam Haryana Source: TRAI, Company research (circles covered Haryana,Punjab,Delhi,Rajasthan,,MadhyaPradesh,MH&Goa,Mumbai,Karnataka,Tamilnadu,Chennai,Orissa,N.East, Assam), BSNL/MTNL* (data including Mumbai & Delhi), Idea# (Data N.A Assam& N.East), Aircel## (Data N.A Haryana, Punjab, Rajasthan, & MP). 3

4 Table 1: Quality of service (Q o S): On considering the Quality of services (circle wise) based on certain parameters. We observed that even though, there are many differences between operators' in terms of services which they are providing in different circles, Vodafone is in high demand due to better Network, Accessibility and Connection maintenance services with good to satisfactory services in most of the circles. However the players like Idea, Aircel are also growing their command with innovative offers, improved/good quality network and using hi fi marketing. Further, Airtel is now improving overall quality of services and forming new brand identity which will help it to gain more in future from present middleof the road condition. Because, previously in many circles it was performing at satisfactory level. While, RCom & Tata are still lacking due to decreasing demand in CDMA segment, poor services even with fine network and high competition from peers. However we expect that Tata s DoCoMo will get benefits in future with its innovative facilities. The largest telecom PSU BSNL is worst performer due to its poor network and other services. This scenario clearly resembles the current trend of MNP (Vodafonegaining/BSNL, RCom losing) and in future it will remain a key deciding factor for subscribers while choosing any operator. Hence, players already started huge spending on improving overall quality of services which will support them to get positive impact of MNP in coming future. Table 2. Customer Helping Service % of calls answered by operators (Voice to Voice) within 60 sec. circle wise* Operator Airtel Vodafone Idea * Rcom Tata Aircel# BSNL Punjab Rajasthan Delhi Karnataka Benchmark Rajasthan Assam (97 100) % Karnataka Chennai Good Orrisa TN Benchmark (93 96) % Satisfactory Benchmark (90 92) % Worst Punjab Delhi Punjab Rajasthan TN Delhi Assam Chennai Delhi Rajasthan Punjab Chennai Haryana Punjab Chennai Delhi TN Assam Haryana Assam Karnataka Haryana Haryana Assam Haryana Rajasthan MP MP Punjab Chennai Rajasthan TN Karnataka Orrisa MP MP Haryana MP MP Karnataka Orrisa Karnataka TN Orrisa TN TN Orrisa Orrisa Delhi Karnataka Chennai Delhi Assam (Circles covered as per Table 1. * Data N.A Mumbai, MH & Goa) Source: TRAI, Company research Table:2 Customer Helping Services: On analysing the benchmark parameters for 'Customer Helping Services'. It is observed that players like Vodafone and Idea are better performer than other players in various circles. While, Airtel and Aircel have satisfactory performance for the segment and players like RCom, Tata and BSNL have shown the worst performance in many circles. This data reveals that 'customer helping services' is said to be an important factor for MNP and hence, it supported a lot in current MNP trend. Therefore players need to improve this services mostly to retain existing customers and by providing proper response to new customers. Also, to get benefit of this factor most of the players have started helpline services dedicated to MNP along with special services like direct contact with their customer care executives to get instant solution for queries without wastage of time. 4

5 Table 3. Attractive Offers for MNP: MTNL: MTNL waives off Port in charges.rs19. Free talk time+ unlimited GPRS with 3G sim Postpaid : Activation charges nil Free 3G activation,50 MB/month data usage ( 4 months) 25% discount on rentals on any plans for first 3 months 100min video call any MTNL no.,500 local/national sms free (1Month) Prepaid: Pay only Rs.10 and get Free 3G SIM with lots of benefits. Free Talk time of Rs.91 Per Second Plan ( MTNL network 1p/2 sec, Other Local & STD 1p/sec), Lifetime validity, Mobile internet at 1p/10KB AIRTEL: waives off port In charges of 19 Rs Postpaid: Advantage plan 199/ month (199 Local+STD min free, 199 Local + STD sms free) Local call: A to A=30p/min, A to O= 50p/min STD call: A to A/O= 50p/min SMS: A to A/O (local/national)=50p, Int l=5 Rs Prepaid: 49 initial recharge = Initial Talktime 30 Rs, Validity Lifetime (Local/STD) Call : A to A/O =1 p/sec SMS: (Local) A to A/O = 1 Rs, (STD) 1.5 Rs * here A= airtel, O=other network VODAFONE: waives off port In charges of 19 Rs Validity Lifetime Prepaid: MRP 19 pack Calls: (local & STD) 1p/sec for one year. Local and Rs1.50/min (After 1 Yr) Initial Talk time Rs. 5 Postpaid: 199 monthly Free Airtime 2000 sec (Local) Calls: (Local/STD) V to V/O=1p/sec SMS: (Local/National) 60 p, Int l= 5Rs Talk 250 New, FV 299, FV 300 & Other special packs TATA DoCoMo: Postpaid: Early Bird Offer On Net calls 1p/6sec i.e. 10p/min for the next 6 months. 100 MB data/month for 6 months (Data can be consumed on 3G network). Free Itemized Bill for 6 months. Prepaid: Initial Talk time of Rs.10. Local + STD Calls = 1p/6sec Free 6 months after first on net min of the day charged at 1p/sec. SMS: (99 free local/national free for the day after paid 1 SMS). Special Talk time Offers: MRP (Rs.) 100,200,300,410 Talk time Value (Rs.) 100,220,350,500 Monthly 149 Free Airtime Rs149 (Local & STD Calls) Local calls : T to T/O=1p/sec STD Call :T to T/O 1p/sec SMS: (Local)1 Re, (STD) 1.5 Re IDEA: *Here=T=Tata docomo,o= others Postpaid: Retail bumper149 monthly Free Airtime 200 min (Local &STD Calls)+ 200 Local SMS Local Calls: I to I =30p/min, I to O=40p/min, I to L=50p/min STD Calls: I to I/O= 50p/min, SMS: (Local) 30 p, (Others) 40p, (Int l) 5 Rs. Prepaid: Starter 25Calls: Local/STD/Landline=1p/sec Tariff for 365 days Calls: Local = (30p/min for 90 days after that 1 p/sec), STD= (1p/sec), SMS: Local=60p(100 SMS free/day after 3 paid SMS), STD=1.2Rs, Int l =5 Rs RELIANCE: Attack on MNP *Here I=idea,O=others Prepaid: Special 34 Recharge 20 Rs Talk time Calls: R to R/O= 1p/2sec for 90 days, Night Calling: (Local) R to R =1p/12 sec (11pm to 6am) for 90 days, after that 1p/sec. STD Calls: R to R/O=1p/sec SMS: (Local/National) 50 p, (Int l)=5rs Postpaid: monthly 199 Free Airtime: 500min incoming during roaming Calls: (Local & STD) R to R/O= 50 p/min Roaming = On (Local) 50p/min, STD=1.50 Rs/min SMS: (Local) R to R/O=1 Rs, (National) =1.50 Rs, (Int l)=5rs AIRCEL: waives off 19 Rs initial MNP charges Prepaid: Special 97 Recharge 120 Rs Talk time in 3 months (1 st month 50, 2 nd 40, 3 rd 30) Calls: A to A/O= 2p/3sec, STD Calls: A to A/O=1p/sec SMS: 90 local+national SMS free for 3 months (After charging daily (Local) 1 st two SMS=60p,(STD)=1.2Rs), (Int l)=5rs * V=Vodafone,O=others Postpaid: 299 monthly Choose any 3 out of (local =200min, STD=100min,(SMS Free) Ar to Ar=500 or A to O=500.with various Inaugural offers Calls: Ar to Ar =1p/2s,Ar to O=1p/s (up to pulse), after that all Ar to Ar/O 1p/s SMS Local) 1 st two SMS=60p,(STD)=1.2Rs),(Int l)=5rs *Here=R=reliance, O=others *Here Ar=aircel, O=others Source: (As per surveyed company retail stores & MNP helpline nos.) 5

6 Table 3: Tariff Offers: With launch of MNP, telco s started giving exciting and innovative offers to attract new customers. Attractive schemes comprising free airtime, per second billing, extra data limit, VAS, lifetime validity, freebies and moreover customer can select their own plan as per the requirements. We considered most popular and demanding offers running presently in both prepaid /postpaid segment and it shows that all plans are innovative and affordable for customer along with huge variety of extra bundled services. This is mainly due to the cut throat competition between players to get new customers mostly in postpaid segment which contributes a vital part in overall revenue of operators. Further, it is expected that ongoing tariff war will remain the same and in future with complete 3G launch, tariffs will be prime factor to support operator earnings. However, we expect that increasing pressure on telco s now a days may increase tariffs in coming future. Presently, India has cheapest telecom tariffs all over the world and further decrease in tariffs will not be fruitful for telecom industry. Popular VAS & 3G services from few operators: (Table 4.) Airtel Vodafone Idea Tata Tele R Com Aircel Common VAS Internet/GPRS, entertainment (music, A/V & caller tunes), bill info, mail & messaging/chats, astrology, travel, devotional, conferencing, social networking, games, daily tips & alerts, matrimony, jobs, news, finance and sports Common VAS Internet/GPRS, entertainment (music, A/V & caller tunes), bill info, mail & msg/chats, astrology, travel, devotional, conferencing, social networking, games, daily tips & alerts, jobs, news, finance & sports Common VAS Pocket Internet/GPRS, entertainment (music, A/V & caller tunes), voice based services,mail & msg/chats, subscription services, conferencing, social networking, games, daily tips & alerts, jobs, matrimony, news, Finance and sports Common VAS Internet/GPRS buddy net, Entertainment (music, A/V & caller tunes), mail & messaging buddy chats, astrology, travel, devotional, games, conferencing, social networking, daily tips & alerts, jobs, news, finance and sports Common VAS Internet/GPRS, entertainment (music, A/V & caller tunes), bill info, mail & msg/chats, astrology, travel, devotional, conferencing, social networking, games, daily tips & alerts, jobs, news, finance, and sports Common VAS Pocket Internet/GPRS, entertainment (music, A/V & caller tunes), voice station, mail & messaging/chats, subscription services, conferencing, social networking, games, daily tips & alerts, news, finance & sports Some Unique Services Daily@5, m commerce (semi wallet services), celebritychat, airtel blog, airteltalkies, airtel mobile campus Some Unique Services Live counseling, m commerce (m banking), ask me, television details, m shop, book tickets, pay utility bills & insurance premiums, portfolio tracker Some unique services Idea TV, match making, live counseling, idea talkies, enquiries, phone backup, portfolio manager & sms conferencing. Some unique services Free voic , timed sms & missed call alerts, pay per site, push 4 mails, m commerce Some Unique Services R world, infotainment and info services, VAS packs, classifieds, mobile road direction and sms conferencing Some Unique Services Dialer tune cards, doctor on call, movie partner, PVR, blyk on Aircel and Aircel pocket applications 3G services (Karnataka) mobile TV, gaming, social networking, video & music on demand, market mobile applications, tips & alerts, 3G video sms, 3G video calling 3G services mobile TV, gaming, social networking, video & music on demand, market mobile applications, tips & alerts, 3G video sms, docomics, 3G video calling. 3G services mobile TV, gaming, social networking, video & music on demand, market mobile applications, tips & alerts, 3G video sms, 3G video calling. (Presently 3G service is available in Karnataka circle. In rest of India expected to be launched before March 11). (Pan India 3G services expected to be launched before March 11) (Pan India 3G services expected to be launched before March 11) (Till now, 3G services launched in few circles. In rest of India expected to be launched before March 11) (Till now, 3G services launched in few circles. In rest of India expected to be launched before March 11 ) (3G services launched in Tamilnadu (Chennai) & UP (E). In rest of India expected to be launched before March 11). Source: (As per surveyed company retail stores & Helpline nos. & Company research) 6

7 Table 4: 3G/VAS: This is said to be the game changing factor in coming future. Because, it is expected that India will have more than 100 mn 3G users by 2015 and with increasing data usage powered by 3G services it will impact positively on performance of operators and especially in case related to high end/postpaid segment customers. As one side they are the early users of 3G &VAS which may act as a huge revenue pie for operators in future but, on other hand it can be revenue mover for operators if customers disappointed from operator services. Thus, operators are trying to bring useful and innovative data usage plans with lots of applications to ease customer experience vis a vis developing application store from where customer can get whatever application they want at affordable prices. Hence, this factor will become more important as compared to other factors in coming future. And this segment is expected to become a key requirement for subscribers in coming days through lots of user friendly applications and softwares all around. Overview: As per the latest data available, nearly 1.71 mn subscribers have applied for MNP. Out of which around 0.23 mn subscribers belongs to Haryana where MNP started before other states. If we talk about zone wise then, Zone I (North & west region) which includes has maximum request 0.17 mn and secondly from Rajasthan 0.14 mn. For Zone II (South & East region), maximum request are from Karnataka 0.12 mn followed by Tamilnadu 0.11 mn. The latest nos. reveal that, Vodafone is still leading with net subscribers gain of (0.17 mn), followed by Idea (0.15 mn), Bharti Airtel (0.13 mn), Tata DoCoMo (0.12 mn) and Aircel (0.11 mn). However, in case of RCom, BSNL and other new entrants, each of them lost nearly (0.23 mn) subscribers. This shows that Incumbents are getting benefits due to improved/good services, huge marketing, wide area spread and other facilities. However, players like Tata DoCoMo, Aircel and Uninor are gaining due to innovative & cheaper services popular among youth. Presently, India has over 752million wireless subscriber base with 64 % tele density and post MNP it has been found that initial churning rate is about 5 6% and expected to remain high for coming six to eight months due to extra benefits available for subscribers in terms of tariffs and other factors as we mentioned earlier. However, same time it is imposing pressure on telecom operators because of expenses in terms of high marketing, network quality improvement and on going tariff wars. Hence, we can see pressure on revenue and margin of telecom companies for short time due to extra burden on them particularly on incumbents as their expense basket include various costs like marketing, 3G installation and latest one new pricing based 2G spectrum fee. But still we hope that in coming nine to twelve months the initial churning rate will decrease up to 3 4 % and which will provide some stability to telecom players. And if we look on the general trend of MNP over different foreign countries, we able to know that after a long time period (around 3 6 quarters) actual effect has been observed in terms of value churn. Because by this time operators able to fulfill necessity requirements regarding network enhancement and bring out other useful services (3G/data) to attract customers. Similarly, with expected turnaround changes in telecom industry like new policies implementation, 3G experience and consolidations in near future will bring a better direction for industry and then only telecom industry will able to achieve solidity. 7

8 Networth Research: E mail research@networthdirect.com Dimple Khetan Banking & Midcaps dimple.khetan@networthdirect.com Jinal Savla Power jinal.savla@networthdirect.com Minal Dedhia Midcaps minal.dedhia@networthdirect.com Shruti Raut Power (Associate) shruti.raut@networthdirect.com Siddharth Deshmukh Telecom (Associate) siddharth.deshmukh@networthdirect.com Derivatives & Technical Research Akshata Deshmukh AVP Derivatives & Technical s akshata.deshmukh@networthdirect.com Kekin Maru Derivatives Analyst kekin.maru@networthdirect.com Akhil Rathi Research Associate Derivatives akhil.rathi@networthdirect.com Institution Sales dealing@networthdirect.com Prakash Diwan Head Institutional Business prakash.diwan@networthdirect.com Viral Malia AVP Institutional Sales viral.malia@networthdirect.com Key to NETWORTH Investment Rankings Buy: Upside by>15, Accumulate: Upside by +5 to 15, Hold: Upside/Downside by 5 to +5, Reduce: Downside by 5 to 15, Sell: Downside by>15 Disclaimer: This document has been prepared by Networth Stock Broking Ltd. 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