>India Mobile sector(UBS)

􀂄 Do greenfield mobile operators have a business case in India?
Greenfield operators such as Telenor-Unitech and Swan-Etisalat plan to enter the
India mobile market in 2009. In this report, we examine whether these operators
have a business case in light of passive infrastructure sharing, intra-circle roaming,
and lower interconnect charges.
􀂄 Proprietary survey and new entrant financial model provide some answers
We conducted a proprietary survey of 30 mobile industry participants with an
average industry experience of over 10 years in India. Based on the survey, we
built a proprietary financial and valuation model for a greenfield operator.
􀂄 UBS view: greenfield operators do not have a business case
We believe new entrants face several challenges—brand building, distribution,
spectrum availability, organisation building, negative free cash flow, and scale. We
conclude it will take four to five years for EBITDA to breakeven and seven to
eight years for net profit to breakeven. We arrive at a negative NPV (US$25m) for
a new operator. Of the new operators, Telenor-Unitech has the best chance of
success, in our view.
􀂄 New entrants unlikely to impact competitive intensity
The mobile sector is very competitive in India and we do not expect new entrants
to impact competitive intensity, although they will try to create value. We have
factored in higher competitive intensity to account for Reliance Communication’s
(RCOM) recent GSM launch and Tata Tele’s potential GSM launch in H209. We
maintain our Buy ratings on Bharti Airtel, RCOM and Idea Cellular. We maintain
our Short-term Sell rating on Bharti, as we expect more consensus earnings
downgrades.

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