LTE 4G business supremacy: Reliance Industries v/s Bharti Airtel

Telecom Lead India: Despite an unprecedented delay in
LTE launch by Reliance Industries that will pitch against Airtel, analysts have
started predicting success for RIL’s telecom venture in India. But Airtel will
not give up and grow in global telecom markets.

Recently Credit Suisse said RIL’s Infotel will be in a
better to position to gain market share in mobile broadband business thanks to
its aggressive pricing strategy.

Besides financial strength of Mukesh Ambani’s RIL, Infotel
Broadband has pan India presence to roll out BWA services. It is the only
telecom operator to have nationwide license. BSNL has licenses across India,
excluding Mumbai and Delhi (which are owned by MTNL). But BSNL is looking at
surrendering a part of BWA license.

RIL is sitting on a huge cash reserve of around Rs 1 lakh
crore, India Today reported. It paid 12,847 crore for bagging BWA spectrum in
2010. RIL is currently talking with telecom equipment companies such as Huawei,
Ericsson, ZTE, Samsung, Nokia Siemens etc. for its LTE roll out.

RIL may look at entering the 2G market as and when the
spectrum auction happens. Spectrum will be available for a base price of Rs
14,000 crore.

Airtel is facing ARPU pressure on both mobile and data business

Airtel’s ARPU from mobile services and data services in
India reduced by 3 percent and 10 percent, respectively, in the first quarter
of fiscal 2012-13. Mobile services ARPU decreased 3 percent to Rs 185 in first
quarter ended June 30 2012 from Rs 190 in the same quarter previous fiscal.
Mobile data ARPU declined 10 percent to Rs 40 from Rs 44. 3G users of Bharti
Airtel increased to 37,13,000 in Q1 2012-13 from 27,11,000 in Q4 2011-12. Total
number of Airtel data customers stands at 3,86,60,000 in Q1 2012-13 against
3,57,80,000 in Q4 2011-12. reported that investment banks such
as Credit Suisse, Morgan Stanley, Goldman Sachs and Standard Chartered
downgraded Airtel stock following disappointing quarterly
earnings. Bharti Airtel reported its 10th straight quarter of profit decline as
competition squeezed margins despite gaining subscriber market share from some
of its smaller rivals.

Though Airtel has faced downgrades from several bankers, the
Sunil Mittal promoted Airtel has the potential to come back in a big way.
Airtel has proven experience in doing retail business. Its match-box policy has
given solid result. RIL’s retail textile strategy did not yield expected result
and its recent foray into retail business is still testing the market.

Since Airtel has business in India, Bangladesh, Sri Lanka
and Africa, Airtel is in a better position to negotiate with telecom equipment
makers for a better price. Besides this, Airtel is partly owned by SingTel
which has presence in other markets as well. Bharti Airtel is known as an
employee friendly organization.

According to Credit Suisse report, RIL’s entry may make the
market very competitive in the long term. In the short term, RIL may make the
2G auction price aggressive.

Entering the voice business, using BWA license, will
increase the addressable market for RIL. A data-only LTE strategy will lead to
small market with a size of around $750 million revenues. It may not be enough
to build a business case, given the fact that it paid $2.5 billion for the
spectrum. Bundling of voice and data may increase its market manifold.

The data and voice strategy sustained competitive pressure
may dent the market share of existing top operators like Bharti Airtel and Idea

Credit Suisse said RIL may start with a six percent
revenue/subscriber market share of the addressable segment, gradually going up
to 30 percent by the fifth year.

In overall market share terms, it will translate to around
11 percent market share by fifth year and 18 per cent by the 10th year.

Bharti may soon lose the tag of having the strongest balance
sheet in Indian telecom, and the investor comfort that comes with this.

RIL LTE modem and dongle sell at lower price points
than that of Bharti’s which sell at Rs 7,500-8,000. It is not impossible for
RIL Infotel to price an LTE dongle at a 35 percent discount to Bharti’s current
price or at around Rs 5,000.

Credit Suisse assumes that RIL Infotel will launch with data
tariffs at 8p/MB. RIL Infotel’s pricing will be at a 75 percent discount to
Bharti’s current data tariffs. RIL is likely to cover around 33-40 percent
nationwide population within three to five years of launch, respectively. This
includes an aggressive 100 percent population coverage in the top 15 cities,
the cream of the data market.

Increase in market penetration of LTE will assist both
Airtel and RIL to gain.

Baburajan K

[email protected]