Mar 20, 2003|
Cellular: Net addition tapers
Despite uncertain policy environment the cellular segment continues to grow at a stellar rate. The advent of Wireless in Local Loop (WiLL) services has resulted in further fall in air time charges. This combined with the growing second hand market for mobile handsets has enabled cellular players to grow subscriber base at an average rate of 5% on a month-on-month basis since January 2001. The total cellular subscriber base crossed the 10 m mark in December 2002 and is all set to cross the 12 m mark by the end of March 2003.
If one were to go a step further, net additions per month has started to show first signs of growth plateauing in recent months. The impact is apparent after December 2002 when Reliance launched its WiLL services. Reliance has targeted a subscriber base of 10 m in the first year of operation, which is a significant number by any yardstick. Though there are limitations i.e. both the caller and the receiver have to be Reliance's subscribers to take advantage of competitive rates, the overall package is attractive. While cellular player charge Rs 1.5 per SMS, Reliance offers the same service free of cost. Other players have also commenced WiLL services in a limited way. To combat WiLL service, mobile operators are expected to reduce air time charges further in the near future. It is a wait and watch situation at the current juncture.
Bharti, with more than 3 m mobile subscribers as of February 2003, continues to dominate the cellular scene. Given its presence in 15 circles, the company has reaped maximum benefits from the sharp spurt in demand for mobile services till now. Bharti now commands a market share of 25%. The nearest competitor is Hutch (14%), which is predominantly focused in urban markets. BSNL, in less than one year of commencement of operations, has managed to cross the 1.5 m subscriber mark in February 2003 (13% market share). We expect BSNL's market share to stagnate at the current juncture till it augments its capacity. In the phase-I of BSNL's plan, the PSU major's planned capacity was 1.5 m lines. The subscriber base has already crossed this level in February 2003. In the second phase, it has plans to augment capacity to 2.5 m lines, which is expected to commence soon.
The threat of competition from WiLL will continue to have a negative impact on cellular players. Already the airtime reduction in 3QFY03 resulted in blended revenues (average of pre-paid and post paid) falling by 6% to Rs 767 per month per user. Further reduction will add to the pressure on margins. That said, the elasticity of demand to a fall in tariff has been impressive in case of cellular segment. Just to put things in perspective, for Bharti in 3QFY03, average blended monthly minutes per user increased by 8%. The rise was more significant in case of post paid customers (24% in a single quarter). On one hand, cellular players are facing an uncertain regulatory environment and on the other, competition is increasing. Given this backdrop, the risk profile of telecom stocks is on the higher side and as a result, it is wise to exercise caution before taking investment decisions.
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