>TELECOM SECTOR (RELIGARE)

GSM subscribers cross 300mn mark

GSM operators recorded net additions of 8.3mn subscribers in May (excluding Reliance Communications), as against 8.96mn in April – a MoM dip of 7.4%. The decline in May follows a 20.3% MoM drop in April. Lower additions in both months were primarily due to BSNL whose new subscriber tally has fallen from 2.9mn in March to 0.45mn in May. Seasonally as well, the first half of the financial year is a slow period. In the last four years, ~42% of new subscribers
were added in the first half of the fiscal. We expect a repeat of this trend in FY10 with several new network launches in the second half.

■ Bharti’s net additions flat at 2.8mn: Bharti Airtel’s net additions at 2.8mn were consistent with the previous month while remaining at the same level for close to a year now. In a highly competitive market, we see Bharti’s ability to maintain a run-rate of 2.8mn additions as an encouraging sign and indicative of the company’s strength and leadership position.

■ Vodafone’s tally down 8.4% MoM: As in April, Vodafone witnessed a drop in additions for May. This comes after a consistent rise in subscriber additions till March following the extension of network coverage across India (seven new circle launches between August and December). May net additions at 2.54mn were down by 8.4% MoM.

■ Idea’s net adds up 13.3%: Idea Cellular’s net additions at 1.3mn subscribers in May (including Spice) were above its 1.15mn tally for April.

■ BSNL witnesses 55.9% plunge: BSNL’s subscriber additions at 0.45mn were 56% lower than the company’s April figure of 1.03mn and far short of the March figure of 2.9mn. However, as we have noted in the past, this is a common phenomenon in the BSNL subscriber trajectory owing to the year-end push in March to meet growth targets. We also believe BSNL is facing increasing pressure on rural subscriber retention and thus witnessing a higher churn due to the increasing penetration of market leaders in rural areas.

■ Aircel net adds flat at 1.1mn: Aircel’s net additions were flat MoM at 1.1mn with 30% of the new subscribers coming from its leadership market in Tamil Nadu. Aircel recently raised US$ 500mn in ECBs in March ’09.

■ Maintain Neutral sector outlook: In Q4FY09 all the major telecom players fared well with the exception of Bharti, whose revenue growth was below our expectations, and Rcom which witnessed a downturn in its wireless business. Further, operators have managed tariffs well by not responding to the reduction in mobile termination charges. However, increased competition over coming months would raise pressure on tariffs. We thus maintain our Neutral outlook on the sector.

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