Shobhit Khare (Shobhit.Khare@MotilalOswal.com) +91 22 3982 5428

Indian telecom monthly

SIM: Special In the Month .............................................................. 2

n INDIA TELECOM: 1QFY13 preview

n Bharti Airtel: Continued competitive pressure, aggravated by regulatory

uncertainty; Cutting estimates, target price

Numbers: Statistical Review (May) ............................................... 4

Buzz: Monthly Updates.................................................................. 10

n INDIA TELECOM: Split TDSAT verdict on 3G roaming; regulatory certainty

remains elusive

Messages: Key Sector Developments (May) ..................................12

Signals: Sector Outlook & Valuation.............................................. 14

Main Menu Gallery

July 2012

TALK TIME

TELE

3T

Industry wireless net additions (m)

Stock price performance v/s Sensex

May-12 subscriber market share (inner)

4QFY12 AGR market share (outer)

Absolute performance (%)

Speed Dial: Monthly Summary

n In 1QFY13, we expect the average wireless traffic for the top-4

operators to grow ~4% QoQ. Wireless RPM decline is likely to

continue due to relatively higher competitive activity amidst

regulatory uncertainty. Operators have not been able to fully pass

on the negative impact of hike in service tax and change in

regulations for tariff vouchers. We expect Idea to continue reporting

the highest traffic growth at 6% QoQ, followed by Bharti (3.5% QoQ).

n We expect consolidated EBITDA margin for Bharti to remain largely

flat QoQ at 33.2%; margin for India and South Asia business is also

likely to be stable. Idea is likely to report consolidated EBITDA margin

of ~28%; flat QoQ on an adjusted basis. For RCom, we model

consolidated EBITDA margin of 32% in 1QFY13.

n The regulatory environment continues to be uncertain. While EGoM

decided to offer higher quantum of spectrum (10MHz+) in the

upcoming auction mandated by the Supreme Court, the crucial

decision on reserve price has been delayed. Potential industry

consolidation/exit of new entrants could lead to improvement in

the operating environment for the Indian wireless sector, given the

discounted pricing being offered by challengers to buy market share.

n Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR

for Bharti/Idea, led by 10/17% traffic CAGR in the India wireless

business. Reiterate Buy on Bharti (trades at an EV of 7x FY13E and

5.7x FY14E EBITDA) and Idea (trades at an EV of 6x FY13E and 4.6x

FY14E EBITDA). Maintain Neutral on RCom.

Comparative valuations

CMP Rating TP Upside Mcap EV P/E (x) EV/EBITDA (x) EV/Sales (x)

(INR) (INR) (%) (USD b) (USD b) FY13E FY14E FY13E FY14E FY13E FY14E

Bharti* 317 Buy 370 16.9 21.5 33.1 22.6 15.7 7.0 5.7 2.5 2.1

I d e a 85 Buy 100 17.6 5.0 7.3 18.6 11.0 6.0 4.6 1.7 1.4

RCom 67 Neutral 65 -2.1 2.5 8.9 11.7 5.9 6.4 5.2 2.1 1.8

*Proportionate EV/EBITDA and EV/sales

20

17

171 1

13

9

7

21

8

14

9

5

8 31

8

4 Bha rti Airte l

RCo m

Vod afone

BSNL+MTNL

Idea

Ta ta Tele

Airc el

New entrants

5 613 8

-13

1 2- 3

0

- 19

5 58 3

-17

-12

-30

511

- 7

1W 1M 3M 6M 12M

B ha rti Id ea R COM Se ns ex

1

30

65

100

135

170

Jul-

11

Jul-

11

Aug

-11

Sep

-11

Oct

-11

No

v-1

1

Dec-1

1

Jan

-12

Feb

-12

Ma

r-1

2

Apr-

12

Ma

y-1

2

Jun

-12

Bh arti reb ase d RCom rebas edSens ex reba sed Idea reba sed

Investors are advised to refer through disclosures made at the end of the Research Report.

97 8

2

810

Dec

-11

Jan-

12

Feb-

12

Ma

r-12

Ap

r-12

May

-12

2July 2012

TELE3T

TALK TIME

Special In The MonthSIM

Please refer to our detailed

report dated July 2012

India Strategy: June 2012 Results PreviewTelecom - 1QFY13 preview

Wireless traffic to grow ~4% QoQ; RPM pressure to continue: In 1QFY13, we expect

the average wireless traffic for the top-4 operators to grow ~4% QoQ. Wireless RPM

decline is likely to continue due to relatively higher competitive activity amidst

regulatory uncertainty. Operators have not been able to fully pass on the negative

impact of hike in service tax and change in regulations for tariff vouchers. Within

operators, we expect Idea to continue reporting the highest traffic growth at 6%

QoQ, followed by Bharti (3.5% QoQ).

Expect stable EBITDA margin for Bharti/Idea: We expect consolidated EBITDA margin

for Bharti to remain largely flat QoQ at 33.2%; margin for India and South Asia business

is also likely to be stable, led by QoQ flat revenue/cost trends. Idea is likely to report

consolidated EBITDA margin of ~28%; flat QoQ on an adjusted basis. For RCom, we

model consolidated EBITDA margin of 32% in 1QFY13.

Forex loss for Bharti/Idea to drag PAT: We model forex loss of INR2.3b/INR0.45b for

Bharti/Idea, given the sharp depreciation of INR as well as African currencies against

the USD. While we expect QoQ PAT growth of 7/13% for Bharti consolidated/ex-Africa,

QoQ PAT growth for Idea is likely to be dragged down by forex impact. For RCom, our

QoQ PAT decline expectation is largely based on positive tax provision as compared

to write-back in the previous quarter.

Africa business to be impacted by adverse forex movement: Bharti’s Africa business

is likely to be impacted by ~4% adverse weighted currency depreciation as compared

to USD. We expect flat QoQ revenue/EBITDA in USD terms and model US40m derivative

and exchange fluctuation loss in 1QFY13 due to adverse currency movement.

Industry subscriber additions stable at ~7m on proforma basis: While industry

subscriber net additions declined to ~2m in April 2012 on a reported basis, this was

largely on account of write-off in the subscriber base of S Tel/Etisalat (which have

exited the Indian market). We estimate proforma net adds for April at ~7m, down

~50% YoY due to lower competitive activity and higher penetration levels.

Regulatory uncertainty remains an overhang: The regulatory environment continues

to be uncertain. While EGoM decided to offer higher quantum of spectrum (10MHz+)

in the upcoming auction mandated by the Supreme Court, the crucial decision on

reserve price has been delayed. Potential industry consolidation/exit of new entrants

could lead to improvement in the operating environment for the Indian wireless

sector, given the discounted pricing being offered by challengers to buy market share.

Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR for Bharti/Idea, led

by 10/17% traffic CAGR in the India wireless business. Reiterate Buy on Bharti (trades

at an EV of 7x FY13E and 5.7x FY14E EBITDA) and Idea (trades at an EV of 6x FY13E and

4.6x FY14E EBITDA). Maintain Neutral on RCom.

3July 2012

TELE3T

TALK TIME

Special In The MonthSIM

Please refer to our detailed

report dated 2 July 2012

Bharti Airtel: Competitive pressure aggravated byregulatory uncertaintyCutting estimates, target price

We are downgrading FY13/14 EBITDA estimates for Bharti by 4-6% and EPS by 23%

largely on lower India mobile RPM/margins given adverse pricing environment.

Our recent industry interactions suggest pricing pressures continue in 1QFY13;

industry has not been able to fully pass on the impact of: 1) increase in service tax,

and 2) regulatory restrictions on sales of certain bundled top-up vouchers.

We are incorporating INR2.3b forex loss in 1QFY13 for Bharti primarily due to

estimated 4-5% loan-weighted depreciation in African currencies during the

quarter. We are also tweaking our Africa business estimates to incorporate

currency swings as well as lower subscriber adds/margins. We now expect FY13/

14 EBITDA of USD1.3/1.6b implying an EBITDA CAGR of 21%.

Lack of regulatory clarity on 2G spectrum auction remains an overhang given 1)

potential spectrum liability, and 2) pricing pressure from challengers with unviable

business models.

Maintain Buy with a revised target price of INR370 (INR 400 earlier) based on 7.5x

FY14 EV/EBITDA for India & SA business, 5x EV/EBITDA for Africa business and

INR142b impact for potential regulatory outlay.

Consolidated

FY13E FY14E

Revenue (INR b)

Old 809 882

New/Actual 805 879

Change (%) -0.5 -0.3

EBITDA (INR b)

Old 283 329

New/Actual 272 311

Change (%) -4.0 -5.6

Net Profit (INR b)

Old 69 100

New/Actual 53 76

Change (%) -23.2 -23.2

EPS (INR)

Old 18.3 26.2

New/Actual 14.0 20.2

Change (%) -23.2 -23.2

India & South Asia

FY13E FY14E

Revenue (INR b)

Old 571 623

New/Actual 561 613

Change (%) -1.7 -1.6

EBITDA (INR b)

Old 211 241

New/Actual 201 227

Change (%) -5.1 -6.0

Mobile traffic (b min)

Old 994 1,068

New/Actual 998 1,073

Change (%) 0.4 0.5

RPM (p)

Old 43.9 45.1

New/Actual 42.6 43.8

Change (%) -2.9 -2.9

Africa

FY13E FY14E

Revenue (USD b)

Old 4.8 5.4

New/Actual 4.5 5.1

Change (%) -4.9 -5.2

EBITDA (USD b)

Old 1.4 1.8

New/Actual 1.3 1.6

Change (%) -8.0 -11.7

Subscribers (m)

Old 66 84

New/Actual 65 79

Change (%) -1.4 -5.4

ARPU (USD)

Old 6.7 6.0

New/Actual 6.4 5.9

Change (%) -4.4 -1.6

Bharti: Summary of estimate change

4July 2012

TELE3T

TALK TIME

Pan India trend of wireless subscriber base and net adds (m)

Monthly industry

net adds bounced back to

8m in May-12

Wireless net adds (m) trend of leading operators (m)

Source:TRAI

Bharti continued to lead

the net adds for third

consecutive month

Monthly trend analysisMay 2012

Statistical ReviewNUMBERS

545

564

584

652

671

688

707

730

752

771

791

812

827

840

851

858

866

874

881

894

929

601

618

636

884

904

911

919 92

1

8

20 1921

17 1618 17

18 1719

23 23

19 20 20

1513

11

7 7 8 83 9 10

78

2

Jan

-10

Feb

-10

Ma

r-10

Ap

r-10

Ma

y-10

Jun

-10

Jul-

10

Aug

-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Ma

r-11

Ap

r-11

Ma

y-11

Jun

-11

Jul-

11

Aug

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ap

r-12

Ma

y-12

Pan In dia - Wireles s Sub scriber B ase (m) Pan India - Wire less Net Adds (m)

-5

-3

-1

1

3

5

Jan

-11

Feb

-11

Ma

r-11

Ap

r-11

Ma

y-11

Jun

-11

Jul-

11

Aug

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ap

r-12

Ma

y-12

Bh arti Idea RCom Vodafo ne

Tata Tele BSNL+MTNL Aircel

Operator-wise wireless net adds (m)

Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 MoM (%)

B harti 1.0 1.3 1.8 2.5 2.0 2.0 (0)

Vodafon e 0.9 0.9 0.8 1.0 0.8 1.2 47

B SNL 0.4 0.9 0.1 0.0 0.0 0.0 NA

IDEA (incl . Spice) 2.4 1.7 2.6 2.0 1.5 1.8 18

Aircel 0.7 0.8 0.8 (0.7) 1.0 (1.9) (287)

MTNL 0.0 0.1 0.0 0.1 (0.1) (0.2) 55

R el iance Comm 0.9 0.9 1.0 1.0 0.5 0.5 1

Tata Tele 0.1 0.2 (1.8) (0.1) (0.5) 0.3 (160)

Sistema 0.5 0.1 0.2 0.4 0.2 0.3 24

HFCL 0.0 0.1 0.1 (0.0) 0.1 (1.4) (1,571)

Loo p Mo bi le 0.0 0.0 0.0 0.0 (0.0) 0.0 (194)

Un inor 2.1 2.5 2.3 1.3 1.1 1.5 36

S Tel (0.0) (0.1) 0.0 0.0 0.0 0.0 NA

Etisala t DB 0.1 0.0 (0.9) 0.0 0.0 0.0 NA

Videocon (0.0) 0.4 0.3 (0.2) 0.2 0.1 (19)

Total 9.2 9.9 7.4 7.3 6.8 4.2 (38)

5July 2012

TELE3T

TALK TIME

Aggregate adjusted gross revenue (AGR) of telecom operators (INR b)

Aggregate industry AGR

in 4QFY12 declined ~2%

QoQ largely due to year-

end adjustments

Adjusted gross revenue (INR b)4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ

FY10 FY10 FY10 FY11 FY11 FY11 FY11 FY12 FY12 % %

Bharti (incl. wireline) 67.8 71.5 68.7 70.7 70.2 75.6 74.0 77.7 77.0 10 -1

Vodafone 42.7 44.1 43.8 45.9 47.7 50.5 50.5 54.6 55.6 17 2

Idea/Spice 26.3 27.9 27.4 29.7 31.2 33.5 33.6 36.5 38.8 24 6

BSNL/MTNL 19.7 18.6 18.6 19.2 19.9 19.8 19.9 18.7 17.3 -13 -8

RCOM (incl. wireline) 18.8 21.3 21.3 19.5 18.4 18.6 19.5 21.7 16.7 -9 -23

Tata Tele (incl. wireline) 18.5 18.1 18.7 20.0 21.1 22.0 21.7 22.9 23.5 11 3

Aircel 9.6 10.5 11.0 10.8 10.9 11.6 11.7 11.7 11.3 4 -4

Others 2.4 2.6 3.6 5.1 6.0 7.9 10.2 10.7 10.0 65 -7

All India 205.9 214.7 213.2 220.8 225.4 239.4 241.1 254.6 250.1 11 -2

QoQ (%) 6 4 -1 4 2 6 1 6 -2

AGR share (%)4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ

FY10 FY10 FY10 FY11 FY11 FY11 FY11 FY12 FY12 (BP) (BP)

Bharti (incl. wireline) 32.9 33.3 32.2 32.0 31.1 31.6 30.7 30.5 30.8 -36 27

Vodafone 20.7 20.5 20.6 20.8 21.2 21.1 20.9 21.4 22.2 107 79

Idea/Spice 12.8 13.0 12.9 13.4 13.9 14.0 14.0 14.3 15.5 167 118

BSNL/MTNL 9.6 8.6 8.7 8.7 8.8 8.3 8.3 7.4 6.9 -191 -44

RCOM (incl. wireline) 9.1 9.9 10.0 8.8 8.2 7.8 8.1 8.5 6.7 -148 -186

Tata Tele (incl. wireline) 9.0 8.4 8.8 9.1 9.4 9.2 9.0 9.0 9.4 1 40

Aircel 4.7 4.9 5.1 4.9 4.8 4.8 4.9 4.6 4.5 -32 -10

Others 1.2 1.2 1.7 2.3 2.7 3.3 4.2 4.2 4.0 131 -23

All India 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: TRAI

Source: TRAI

Wireless net adds (m) trend of new entrants

We expect pressure on

new entrants to continue

given regulatory

uncertainty

-1

0

1

2

3

4

Jan

-11

Feb

-11

Ma

r-11

Ap

r-11

Ma

y-11

Jun

-11

Jul-

11

Aug

-11

Sep

-11

Oct

-11

No

v-11

Dec

-11

Jan

-12

Feb

-12

Ma

r-12

Ap

r-12

Ma

y-12

Uninor Sis tema Shyam

5.84.3

-0.73.6

2.1

6.3

0.7

5.6

-1.7

206 215 213 221 225239 241 255 250

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

4QF

Y12

QoQ AGR growth (%) Ad jus ted Gros s Revenu e (INR b)

6July 2012

TELE3T

TALK TIME

May 12: Wireless subscriber market share May 12: Wireless net adds market share

May 12: Circle wise subscriber mix May 12: Circle wise net adds mix

Bharti remains the market leader with ~20%

wireless subscriber market share followed by

RCOM/ Vodafone (16-17%); new entrants

together constitute only ~8% of the market

Bharti reported the highest net adds

market share followed by Idea

Metro and 'A' Circle categories together

constitute 46% of the industry subscriber base Metros reported negative net adds in May 2012

B harti , 20%

Rel ian ce

Comm, 17%

Vodafo ne,

17%

Idea, 13%

Tata Te le,

9%

Aircel , 7%

(n ew

entran ts),

8%

BSNL/MTNL,

11%

BSNL+MTNL

, -4%

Oth ers

(n ew

entran ts),

12%IDEA,

42%

Airce l ,

-45%Tata Te le

7%

Vodafo ne,

29%

Rel ia nce

Co mm

12%

Bharti

48%

Me tro

12%

'A' Ci rcle

34%' B' Ci rcle

39%

'C' Ci rcle

14%Me tro

-46%

'A' Ci rcle

51%

'B' Ci rcle

64%

'C' Ci rcle

30%

7July 2012

TELE3T

TALK TIME

4QFY12: Gross revenue (GR) market share 4QFY12: Adjusted gross revenue (AGR) market share

Bharti continues to be the market leader with ~30% gross revenue

market share followed by Vodafone (~22%); new entrants

together constitute only ~4% of gross revenue market share

Quarterly trends

4QFY12: Circle wise GR mix 4QFY12: Circle wise AGR mix

Metro and 'A' Circle categories together constitute

~55% of the gross revenues

Bharti , 30%

Vodafo ne,

23%

Idea , 15%

Tala Tele , 9%

RCom, 7%

B SNL+MTNL,

7%

Aircel , 5% Oth ers, 4%

Bha rti , 31%

Vod afone

22%

Idea

16%

Tata Te le

9%

BSNL+MTNL

7%

RCo m

7%

Aircel

5%

Othe rs

4%

Metro

18%

'A' Ci rcle

37%

'B' Ci rcle

34%

'C' Ci rcle

11%

Me tro

16%

'A' Ci rcle

39%

'B' Ci rcle

34%

' C' Ci rcle

12%

8July 2012

TELE3T

TALK TIME

Revenue per minute (INR/Min) *

Average revenue per user (INR/month)

Wireless traffic (Billion Mins) *

Source: Company/MOSL

RPM for GSM majors

declined ~2 QoQ

Bharti (India) and

Idea mobile ARPU grew

~1% QoQ

Bharti/Vodafone/Idea

reported strong QoQ

traffic growth in 4QFY12

at 5/7/9%

* Vodafone RPM and traffic adjusted for on-net traffic to make it comparable with reporting of

other operators. Vodafone counts on-net minutes once while other operators report it as 2

minutes.

0.420.44

0.40

0.48

0.56

0.64

0.72

3Q

FY

09

4Q

FY

09

1Q

FY

10

2Q

FY

10

3Q

FY

10

4Q

FY

10

1Q

FY

11

2Q

FY

11

3Q

FY

11

4Q

FY

11

1Q

FY

12

2Q

FY

12

3Q

FY

12

4Q

FY

12

Bharti (India ) Ide a Vodafone RCom

189

160

179

9990

165

240

315

390

3Q

FY

09

4Q

FY

09

1Q

FY

10

2Q

FY

10

3Q

FY

10

4Q

FY

10

1Q

FY

11

2Q

FY

11

3Q

FY

11

4Q

FY

11

1Q

FY

12

2Q

FY

12

3Q

FY

12

4Q

FY

12

Bha rti (India) Ide a Vodafone RCom

25

75

125

175

225

3QFY

09

4QFY

09

1QFY

10

2QFY

10

3QFY

10

4QFY

10

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12Idea RCom Vodafone Bharti  (India)

9July 2012

TELE3T

TALK TIME

Rural and urban subscriber mix

GSM and CDMA subscriber mix

Source: TRAI

Rural subscriber mix at

inched-up to 35%

GSM subscribers now

constitute 88% of total

wireless base

29% 27% 28% 29% 30% 31% 33% 33% 33% 33% 34% 34% 34% 34% 35%

71% 73% 72% 71% 70% 69% 67% 67% 67% 67% 66% 66% 66% 66% 65%

2Q

FY09

3Q

FY09

4Q

FY09

1Q

FY10

2Q

FY10

3Q

FY10

4Q

FY10

1Q

FY11

2Q

FY11

3Q

FY11

4Q

FY11

1Q

FY12

2Q

FY12

3Q

FY12

4Q

FY12

Rural subscribers (% of to tal) Urban subscribers (% of to tal)

26% 26% 24% 23% 21% 20% 18% 17% 16% 15% 14% 13% 13% 12%

74% 74% 76% 77% 79% 80% 82% 83% 84% 85% 86% 87% 87% 88%

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

2QF

Y11

3QF

Y11

4QF

Y11

1QF

Y12

2QF

Y12

3QF

Y12

CDMA subscribers (% of total) GSM subscribers (% of total)

10July 2012

TELE3T

TALK TIME

INDIA TELECOM: Split TDSAT judgment on 3G roamingRegulatory certainty remains elusive

n TDSAT delivered a split judgment on the 3G intra-circle roaming (ICR) case with one

member (Chairman) setting aside DoT's (Department of Telecom) December 2011 order

banning 3G ICR based on the fact that DoT did not give any "show cause notice" to

operators to explain their position.

n The other member gave a judgment against operators ruling they cannot provide 3G

services in circles where operators have not been allocated 3G spectrum

n Bharti, Vodafone, and Idea have an intra-circle 3G roaming arrangement that enables

them to offer 3G services to their subscribers in the service areas where they do not

have 3G spectrum. DoT's 23rd December 2011 letter instructed the operators to stop

services based on ICR immediately.

n Currently the financial impact of 3G roaming arrangements is insignificant; operators

would likely be allowed to continue with services till further notice

n Regulatory uncertainty continues to persist with no resolution on the key decision on 2G

reserve price and auction details

n We have Buy rating on Bharti (trades at 7x FY13 EV/EBITDA) and Idea (trades at 6x FY13

EV/EBITDA).

Monthly UpdatesBUZZ

Key takeaways from Judgment made by Chairman (Justice S B Sinha)

n DoT's impugned orders dated 23.12.2011 are set aside; DoT can pass appropriate

orders upon giving due opportunity of hearing to the operators who have entered

the ICR.

n While the government contends that ICR agreements violate licence conditions,

the DoT did not have the copies of these agreements at the time of passing of the

impugned order.

n Since DoT is of the opinion that roaming facilities do not amount to sharing of

spectrum, it should give the operators an opportunity of hearing.

n DoT may pass appropriate orders after considering the responses to its show cause

notices.

Key takeaways from Judgment made by the other member (Mr P K Rastogi)

n Operators who have not been allocated 3G spectrum in a circle by the government

cannot provide 3G services in those circles by way of making ICR with operators

having 3G spectrum.

n Show cause notice from DoT was not necessary. The principle of natural justice is

not violated by the impugned communication dated 23.12.2011

n The impugned letter simply instructed the operators to stop the illegal services

which were not authorized by the licensor.

n The letter seems to be more in the nature of advice without any penal

consequences.

11July 2012

TELE3T

TALK TIME

Text of DoT's 'impugned' letter issued to operators on 23.12.2011

n It has been brought to the notice of the licensor that you are providing services in

certain service areas to your customers which are otherwise presently available

by virtue of 3G spectrum in 2.1 GHz band only and which cannot be provided with

the spectrum allocated (in the form of carrier of 200 KHz each) to you in the 900/

1800 MHz bands under the provisions of CMTS/UAS licenses granted to you through

the above mentioned intra service area roaming arrangements. This has been

further corroborated by your communications in which you have informed DoT

about the above mentioned Intra Service Area roaming arrangements for the

purposes of meeting the security requirements and various other your

communications in the matter.

n On examination of your various communications in the matter vis-à-vis the terms

and conditions of CMTS/UAS licence, terms and conditions of the NIA for auction

of 3G and BWA spectrum along with queries & responses issued in this regard and

the amendment of license for right to use of 3G spectrum issued to the successful

bidders. It has been concluded that provision of the services by you which are

presently available by virtue of 3G spectrum in 2.1 GHz band only, to your customers

through the above mentioned intra service area roaming arrangements is not

permissible.

n You are, therefore, instructed to stop provision of such services immediately in

all such service areas where you are providing services under above mentioned

Intra Service Area roaming arrangement. A confirmation of having stopped the

services may be provided to this office latest by 15.00 hrs. of 24.12.11 with copy on

email ID diras4-dot.a.nic.in and to the concerned TERM cell along with the names

of the LSAs where the services were being provided. Name(s) of the licensees for

each service area with whom such arrangements were made may also be indicated.

n These instructions are issued without prejudice to any other remedy available to

the licensor and also to any other actions for the breach of any of the conditions of

the CMTS/UAS license agreements signed with the company.

12July 2012

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P Chidambaram appointed head of EGoM on spectrum auction, BJP attacks

decision

Home Minister P Chidambaram has been appointed the head of the Empowered Group

of Ministers (EGoM) on spectrum auction that was reconstituted after Agriculture

Minister Sharad Pawar declined the job fearing controversies. In a decision that was

attacked by the BJP, Chidambaram, a former Finance Minister, will head the seven-

member group that also includes Defence Minister A K Antony, Telecom Minister

Kapil Sibal, I&B Minister Ambika Soni, Law Minister Salman Khurshid, Minister of

State in Prime Minister's Office V Narayanasamy and Planning Commission Deputy

Chairman Montek Singh Ahluwalia. The ministerial panel is to decide on the minimum

or the base price for auction of telecom spectrum vacated from cancellation of 122

licenses by the Supreme Court earlier this year.

Govt may not meet Aug 31 spectrum auction deadline

An inter-ministerial panel set up to supervise auction of spectrum for telecom services

is learnt to have said it is not possible to meet the Supreme Court (SC) deadline of

August 31 to complete the process. According to government sources, the Inter-

Ministerial Committee (IMC) has conveyed that it is difficult to complete the auction

exercise by August 31 due to delay in final decision from Empowered Group of

Ministers (EGoM).

Telecom equipment industry revenues fall marginally in FY'12

Telecom equipment industry posted marginally lower revenues of Rs 1,13,188 crore

in 2011-12 on account of policy uncertainty that slowed investments in network

expansion, according to a Voice&Data survey. In 2010-11, the industry had logged in Rs

1,14,133 crore in revenue. "Nearly half of the Telecom equipment revenue came from

carrier equipment manufacturers, which saw a dip of 5.06 per cent to touch Rs 55,333

crore during the year," CyberMedia group's journal Voice&Data said. The segment

had registered Rs 58,285 crore revenue in financial year 2010-11, it added.

Scrap DoT proposal to charge all spectrum at new rates: Mulayam Singh

Yadav

Samajwadi Party supremo Mulayam Singh Yadav has shot off a letter to Finance

Minister saying existing telecom firms should not be made to pay the same spectrum

fee as to be discovered during the proposed auctions. The Department of

Telecommunications has proposed to use the auction-determined price as the

benchmark for allocating spectrum to existing operators when their licences come up

for renewal in near future. "I am very concerned by this new proposal mooted by DoT

without bothering about the serious and far-reaching consequences," Yadav, whose

party provides outside support to the UPA government, wrote to the then Finance

Minister Pranab Mukherjee on June 10.

Key sector developmentsMESSAGES

13July 2012

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Airtel to invest $25 million on networks in Malawi

Country's largest telecom operator Bharti Airtel today said it will invest US$25 million

for development of 3G network and introduction of Airtel Money services in African

country Malawi. "Our investment of US$25 million in the development of the 3G

network and introduction of Airtel Money are a clear demonstration of our

commitment to deepen our network and bridge the digital divide," Bharti Airtel CEO

(International) and Joint MD Manoj Kohli said in a statement after meeting Malawian

President Joyce Banda.

DoT to roll out uniform revenue share across platforms from July 1

The telecom department (DoT) plans to roll out the process of charging uniform licence

fee or revenue share across all communication services from July 1, after it had

deferred its plans to move to this new structure from the beginning of the current

financial year, an official aware of the development said. The new regime will be

introduced in a phased manner over a two-year period. The DoT has also accepted the

finance ministry's demand that a minimum amount be specified to be quantum of

revenue share. This implies, if 8% of the company's annual revenues were to be

below this figure, the operator must pay the minimum quantum specified.

India's plan to refarm spectrum hinges on army vacating about 55 MHz in

the 1800-MHz band

India's plans to refarm spectrum, or redistribute airwaves that are held by incumbent

mobile phone companies through auctions, will depend on its armed forces freeing

up additional frequencies for commercial telephony. An analysis by the telecom

department has revealed that refarming cannot be executed in full in as many as 12 of

the 22 regions or more than half the country, unless the armed forces vacate about 55

MHz of spectrum in the 1800 MHz band.

14July 2012

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Sector outlook & valuationSIGNALS

Comparative valuations

CMP Rating TP Upside Mcap EV P/E (x) EV/EBITDA (x) EV/Sales (x)

(INR) (INR) (%) (USD b) (USD b) FY13E FY14E FY13E FY14E FY13E FY14E

Bharti * 317 Buy 370 16.9 21.5 33.1 22.6 15.7 7.0 5.7 2.5 2.1

I d e a 85 Buy 100 17.6 5.0 7.3 18.6 11.0 6.0 4.6 1.7 1.4

RCom 67 Neutral 65 -2.1 2.5 8.9 11.7 5.9 6.4 5.2 2.1 1.8

* Proportionate EV/EBITDA and EV/sales

RoIC (%) RoE (%) EBITDA Margin (%) Net Debt/EBITDA (x) Net Debt/Equity (x)

FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Bharti 6.1 7.0 9.4 8.1 9.6 12.5 33.2 33.7 35.3 2.7 2.4 1.7 1.2 1.2 0.8

I d e a 5.8 8.5 11.8 5.7 10.9 16.0 26.1 28.8 30.4 2.6 2.1 2.0 1.0 0.8 0.5

RCom 4.1 4.7 6.3 2.9 3.5 6.7 31.7 32.8 34.9 5.6 5.2 4.9 1.1 1.0 0.8

Capex/Sales (%) Sales Gr. (%) EBITDA Gr. (%) EPS (INR) EPS Gr. (%)

FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Bharti 19.6 19.2 15.2 20.2 12.7 9.2 18.8 14.6 14.3 11.2 14.0 20.2 -29.6 24.9 43.7

I d e a 19.8 14.8 10.0 26.0 18.3 13.4 34.3 30.6 19.9 2.2 4.6 7.7 -19.6 108.6 68.1

RCom 7.4 8.4 10.5 -1.1 9.7 8.3 -1.5 13.6 15.1 4.8 5.7 11.3 -33.8 18.8 99.0

n In 1QFY13, we expect the average wireless traffic for the top-4 operators to grow

~4% QoQ. Wireless RPM decline is likely to continue due to relatively higher

competitive activity amidst regulatory uncertainty. Operators have not been able

to fully pass on the negative impact of hike in service tax and change in regulations

for tariff vouchers. Within operators, we expect Idea to continue reporting the

highest traffic growth at 6% QoQ, followed by Bharti (3.5% QoQ).

n We expect consolidated EBITDA margin for Bharti to remain largely flat QoQ at

33.2%; margin for India and South Asia business is also likely to be stable, led by

QoQ flat revenue/cost trends. Idea is likely to report consolidated EBITDA margin

of ~28%; flat QoQ on an adjusted basis. For RCom, we model consolidated EBITDA

margin of 32% in 1QFY13.

n The regulatory environment continues to be uncertain. While EGoM decided to

offer higher quantum of spectrum (10MHz+) in the upcoming auction mandated

by the Supreme Court, the crucial decision on reserve price has been delayed.

Potential industry consolidation/exit of new entrants could lead to improvement

in the operating environment for the Indian wireless sector, given the discounted

pricing being offered by challengers to buy market share.

n Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR for Bharti/

Idea, led by 10/17% traffic CAGR in the India wireless business. Reiterate Buy on

Bharti (trades at an EV of 7x FY13E and 5.7x FY14E EBITDA) and Idea (trades at an EV

of 6x FY13E and 4.6x FY14E EBITDA). Maintain Neutral on RCom.

15July 2012

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Global valuations

Market Revenue gr. (%) EBITDA gr. (%) EV/EBITDA (x)

Cap (USDB) CY12 CY13E CY12 CY13E CY12 CY13E

China Mobile 220 7 6 3 3 4.2 4.1

AT&T 208 2 1 3 4 6.4 6.1

Vodafone Group 139 -1 -4 -3 -5 8.1 8.4

Te lef onica 56 -7 0 -5 0 5.2 5.1

America Movil 98 19 6 4 5 6.1 5.8

Verizon 126 4 3 8 6 5.9 5.6

NTT DOCOMO 73 0 5 2 5 3.4 3.3

France Telecom 33 -11 -2 -14 -3 4.3 4.4

China Unicom 31 18 15 11 17 3.9 3.3

MTN Group 33 2 6 0 6 4.5 4.2

Zain 11 -1 1 -2 -1 5.4 5.4

Partner Comm 1 -17 -8 -27 -8 4.2 4.6

Average 1 3 -2 2 5.1 5.0

Source: Bloomberg

One-year forward EV/EBITDA

10.0

4

8

12

16

20

Mar

-05

Au

g-0

5

De

c-05

Apr

-06

Sep

-06

Jan

-07

Ma

y-0

7

Sep

-07

Feb

-08

Jun

-08

Oct

-08

Feb

-09

Jul-

09

No

v-0

9

Mar

-10

Au

g-1

0

De

c-10

Apr

-11

Au

g-1

1

Jan

-12

Ma

y-1

2

Bh arti Id ea RCom Ave rageBh arti Id ea RCom Ave rage

16July 2012

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