>INDIA WIRELESS SECTOR: Aircel, Idea rise; Bharti, Vodafone stable (MACQUARIE RESEARCH)

Event
■ GSM operators (excluding the GSM SIMs of RCOM and Tata Tele) added 13.9m SIMs in January 2010, suggesting an accelerating trend, following 12.5m SIMs added in December, 11.1m in November, 10.3m in October and 8.6m in September. We caution investors that multiple SIM ownership is increasing and that accelerating SIM addition will likely not translate into revenue growth. As greenfield operators Uninor and S Tel ramp up their GSM services, we expect competition to intensify, hurting the revenue market share and profitability of GSM incumbents. We reiterate our Underperform rating for all Indian wireless telcos under our coverage.

Impact
■ Industry net adds reaches 13.9m, helped by ramp up of Uninor, S Tel. Uninor and S Tel ramped up their operations, with Uninor capturing 33% of net add share in its eight circles and S Tel cornering 20% net add share in its three circles in January.

■ Key notables in January net adds: Aircel, Idea – positive. Both Aircel and Idea registered sharp increases in net adds in January, with Idea reporting MoM growth of 33% (up from MoM decline of 33% in December) and Aircel reporting MoM growth of 21% (up from MoM growth of 4% in December). Idea’s net add growth chiefly came from Bihar and Gujarat, while Aircel continued its strong performance in Tamil Nadu.

■ Monthly net adds for Vodafone remain stable. Vodafone added 2.74m subscribers in January (vs 2.79m in December and 2.78m in November), while Bharti added 2.9m in January the same as that in December.

■ Price cut contagion is likely to spread to key segments of postpaid/ corporate, wireless data, international roaming and SMS. Further ramp-up and rollout of services by greenfield entrants will likely lead to a further cut in prepaid and increasingly aggressive on-net pricing. Tata DoCoMo has started this with its Buddy plan, which includes unlimited friends. Furthermore, MNP remains a negative catalyst for price cuts by incumbents to stay competitive in the segments of postpaid/corporate, wireless data, international roaming and SMS. Key risks to the downside emanates from our current EBITDA per minute estimate of 14 paisa for Bharti, 12 paisa for Idea and 12 paisa for RCOM in FY3/11, as EBITDA margin dislocation will likely be much higher.
Outlook

■ Reiterate Underweight view on India Telecom stocks. We expect wireless KPIs for listed telcos to continue to deteriorate for the next two quarters, and we see downside risks to consensus estimates for FY3/11. Valuations remain pretty full, in our view, while industry consolidation is at least 12–18 months away. If the share prices were to correct by 10–15%, we could become more positive.

To read the full report: WIRELESS SECTOR