Telecom: An INR368b spectrum hole to be filled

30 September 2016

Update | Telecom

Sector

| Sector Update

Telecom

An INR368b spectrum hole to be filled

Idea/Vodafone could be most active in upcoming auction

Idea needs to spend about INR151b at reserve price, while Vodafone and RJio

require INR85b and INR99b in the forthcoming 2016 auction. Bharti’s need-based

investment could be the least at INR31b.

For the top-3 telcos in the ecosystem, we

have assumed minimum requirement of 10Mhz in each circle in the

900Mhz/1800Mhz/2100Mhz bands for 3G and 4G coverage, and an additional 5Mhz

for voice. For RJio, we assume minimum 10Mhz of own spectrum (excluding RCom)

in the 800-1800Mhz band, which can be used for both voice and data. 2300Mhz is

excluded, given its usage as capacity band. Any telco falling short of this yardstick is

expected to acquire spectrum in the respective circles in the forthcoming 2016

auctions.

Bharti: ~INR31b spectrum need; 50% expected to augment

Maharashtra 4G

Offering



Maharashtra – a bone of contention and to be fiercely fought for:

Bharti, with

its relatively superior holdings, still has a few spectrum holes to fill. Bharti holds

18.5% gross RMS in Maharashtra, which is a large circle in terms of revenue

contribution, operates 4G on 2300mhz as its current 8.2Mhz holding in the

1,800Mhz band is not sufficient to service subscribers’ voice + data needs in the

circle. We believe

this circle might see increased bidding, considering Vodafone

and Reliance Jio too might eye at least a 5Mhz block each to fill their spectrum

holes in Maharashtra

(Maharashtra has 13.4Mhz to offer at a reserve price of

INR3.18b per Mhz).

No 3G in Kerala, but bidding intensity expected to be low in the circle:

Bharti

does not offer 3G services in Kerala, where it holds ~14.9% gross RMS. But we

believe the geography is not expected to see increased bidding from

competitors. Sufficient availability of the 2,100Mhz band, with major operators

(Vodafone/Idea/Reliance Jio) being adequately covered for 3G services in

Kerala, should allow Bharti to secure 3G services at reserve price.

Vodafone: Multiple spectrum holes to require INR85b spectrum

outlay



Five 10-15% market share circles have no 3G-4G services:

Vodafone’s lower

markets like AP, MP, HP and J&K (~10% gross RMS each) and Bihar (RMS is

14.4%) are expected to be focus areas, with 9% revenue contribution but no 3G

or 4G services. Vodafone would be forced to acquire spectrum to protect its

turf. However, any increase in reserve prices due to a bidding war in any of

these circles could further increase its spectrum spend.

Aliasgar Shakir

(Aliasgar.shakir@MotilalOswal.com); +91 22 3010 2415

Jay Gandhi

(Jay.Gandhi@MotilalOswal.com); +91 22 6129 1546

Investors are advised to refer through important disclosures made at the last page of the Research Report.

30 September 2016

1

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sector Update | Telecom



No 4G in Maharashtra:

Vodafone holds a meager 1Mhz spectrum in the

1,800Mhz band and no 2,300Mhz band spectrum in Maharashtra. Vodafone

holds 26% market share in a large market like Maharashtra where both Bharti

and Reliance Jio also need spectrum. Maharashtra has 13.4Mhz to offer at a

reserve price of INR3.18b per Mhz. This should push Maharashtra’s reserve

price in the event of intense bidding by Vodafone to acquire 1800Mhz spectrum.

No 4G in high market share circles like TN, Haryana, UP West, Rajasthan, WB

and North-East:

Vodafone enjoys 20%+ gross RMS in TN, Haryana, UP West,

Rajasthan, 36.7% in West Bengal, and 16.6% in North-East. However, its lack of

spectrum holdings in the 1,800Mhz band is expected to have a bearing on its 4G

footprint in these circles, and consequently, its bidding decisions for these

circles. Vodafone does not have enough 1,800Mhz spectrum holdings to offer

both voice and 4G services in North-East too.

Idea: INR151b spectrum requirement – spectrum insufficient in

16/22 circles for either 3G or 4G, or both

Idea needs the maximum quantum of spectrum in the forthcoming auctions.



No 3G or 4G in Rajasthan, Bihar, Mumbai, West Bengal:

Idea holds 10% plus

market share in all these circles (together contributing 13%), but does not have

either 3G or 4G, which may force Idea to participate. Mumbai is a large market

and cannot be ignored. Since 1800Mhz spectrum is limited in Mumbai (only

4.8Mhz), it may lead to intense bidding, thus increasing the risk of high

acquisition cost or non-availability.



No 4G in high market share circles like Gujarat, UP W, UP E, and HP:

Being high

market share circles, Idea may be interested to hold 4G spectrum to compete

and protect market share against Bharti and RJio, promoting advance

technology. Also UP (E) has only 5.4Mhz of 1,800Mhz spectrum available, which

could be critical from future requirement perspective.



No 4G in Delhi and Kolkata:

Idea holds 12% and 8% market share in Delhi and

Kolkata, respectively. Kolkata is a large market, where only 4Mhz of 1,800Mhz

spectrum is available, which makes it critical for future requirement.



No 3G in TN, Orissa and North East, but could see limited bidding:

There is a

possibility that few of Idea’s circles like TN, Orissa and North East (with low

market share and having 4G) may not see interest from Idea, which could save

about INR19.7b from our INR 151b expectation. However, this could be more

than offset by any increase in reserve price from the current levels.

30 September 2016

2

Sector Update | Telecom

Reliance Jio: INR 99b investment to smoothen coverage gaps

without RCom dependence



No owned spectrum in 800-1800Mhz band in Punjab and UP (W):

With no

owned spectrum in 800-1800Mhz band, both Punjab and UP (W) may be high

priority for RJio. We expect INR17b for about 10Mhz spectrum requirement.

RJio’s owned holdings in 800 MHz + 1800 MHz band < 10Mhz in 12/22 circles:

RJio’s owned spectrum in 12/22 Indian circles is less than 10Mhz. There is no

compulsion to bid for spectrum in these bands, considering RJio has 2300Mhz

for capacity as well as spectrum sharing/trading deals with RCom. Given

Reliance’s philosophy of seeking strong competitive position, if it explores

independence from RCom’s spectrum and its own 2,300Mhz band for 4G

services, it may bid for the 1,800Mhz band in the 11 circles, incurring about

INR82b investment.

Story in Charts

Exhibit 1: Bharti’s Spectrum Holding (MHZ)

Spectrum Holding

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

800

-

900

6.0

5.0

7.0

-

9.0

8.8

-

10.0

-

6.2

6.0

-

6.6

7.4

7.8

7.4

8.0

8.8

6.2

110.2

1800

7.0

15.2

7.0

8.2

11.2

10.0

8.8

14.2

11.2

9.2

14.6

11.2

6.0

8.2

17.0

6.2

10.2

8.0

11.8

5.7

8.6

2.6

212.1

2,100

5.0

-

5.0

10.0

-

5.0

100.0

2300

20.0

-

20.0

-

20.0

-

20.0

340.0

-

Source: dot, MOSL, Company

2,500

30 September 2016

3

Sector Update | Telecom

Exhibit 2: Vodafone’s Spectrum Holding (MHZ)

Spectrum Holding

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

800

-

0

900

5

11

7

5

6

-

6

-

6

-

7

-

5

-

82.6

1800

8

1

8

7

13

9

8

5

3

6

1

7

4

6

7

145.35

2,100

5

-

5

-

5

-

5

-

5

-

75

2300

-

0

Source: dot, MOSL, Company

2,500

30 September 2016

4

Sector Update | Telecom

Exhibit 3: Idea’s Spectrum Holding (MHZ)

Idea Spectrum Holding

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

800

-

900

5

-

9

5

-

6

5

-

7

-

59

1800

8.6

6.4

5.0

9.0

1.6

6.0

11.4

10.0

8.0

6.0

2.2

6.2

7.0

6.3

9.2

5.7

10.0

5.0

10.8

5.0

152

4g GSM

8.6

6.4

5.0

4.0

1.6

1.0

6.4

-

3.0

1.0

2.2

6.2

2.0

6.3

9.2

5.7

5.0

6.0

5.0

97

4g LTE

-

5.0

-

5.0

10.0

5.0

-

5.0

-

5.0

-

5.0

-

55

2,100

-

5

-

5

-

5

-

5

-

5

60

2300

-

2,500

Source: dot; MOSL, Company

30 September 2016

5

Sector Update | Telecom

Exhibit 4: Reliance Jio’s Spectrum Holding (MHZ)

Spectrum Holding

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

800

combined

8.75

10

5

10

5

8.75

6.25

10

8.75

3.75

10

8.75

10

192.5

800

(Rjio)

0

5

0

5

0

3.75

0

5

0

5

48.75

800 (RCom)

8.75

5

10

5

10

5

8.75

6.25

5

10

5

3.75

5

8.75

5

143.75

900

0

1800

5.4

6.6

10

5

6

5.8

5

6.8

5

0

4

0

3

10

6.4

5.6

5.4

0

5

5.4

6.4

0

106.8

2100

0

2300

20

-

2,500

Source: dot; MOSL, Company

30 September 2016

6

Sector Update | Telecom

Exhibit 5: 3G/4G launch

Bharti

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

3G

Y

-

Y

4G

Y

-

3G

Y

-

Y

-

Y

-

Y

-

Y

-

Y

-

Y

-

Vodafone

4G

Y

-

Y

-

Y

3G

Y

-

Y

-

Y

-

Y

-

Y

-

Y

Idea

4G

-

Y

-

Y

-

Y

-

Y

-

Y

-

Source: dot; MOSL, Company

30 September 2016

7

Sector Update | Telecom

Exhibit 6: Bharti’s Spectrum Investments requirement (INR m)

Bharti

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

650

16,550

14,650

0

8,850

15,900

5,800

1800mhz

2100mhz

2300mhz

2500mhz

Total

0

5,800

15,900

0

8,850

0

650

31,200

Source: dot; MOSL, Company

30 September 2016

8

Sector Update | Telecom

Exhibit 7: Vodafone’s Spectrum Investments requirement (INR m)

Vodafone

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

2,000

550

650

53,010

550

32,050

0

4,550

3,818

2,300

800

3,100

1,000

4,300

1,900

6,150

4,800

3,850

4,550

10,692

13,600

15,900

1800mhz

2100mhz

2300mhz

2500mhz

Total

0

15,900

0

24,292

0

8,400

0

4,800

0

4,550

9,968

2,300

1,800

7,400

1,900

2,000

550

1,200

85,060

Source: dot; MOSL, Company

30 September 2016

9

Sector Update | Telecom

Exhibit 8: Idea’s Spectrum Investments requirement (INR m)

Idea

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

650

76,064

75,350

0

2,000

2,300

800

3,100

4,300

1,900

2,300

600

2,600

4,800

5,750

4,550

7,000

16,400

17,200

11,900

1800mhz

19,950

14,304

5,960

23,050

2100mhz

2300mhz

2500mhz

Total

19,950

37,354

5,960

0

11,900

0

16,400

17,200

0

4,800

5,750

11,550

0

4,900

800

7,400

1,900

4,300

600

650

151,414

Source: dot; MOSL, Company

30 September 2016

10

Sector Update | Telecom

Exhibit 9: Reliance Jio’s Spectrum Investments requirement (INR m)

Reliance Jio

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

650

99,322

0

3,100

2,300

9,000

1,660

7,700

2,350

9,600

5,750

15,900

11,900

10,692

7,770

800 Mhz

900 Mhz

1800mhz

19,950

2100mhz

2300mhz

2500mhz

Total

19,950

0

15,900

11,900

10,692

7,770

0

1,660

7,700

2,350

9,600

5,750

0

2,300

0

3,100

0

650

99,322

Source: dot; MOSL, Company

30 September 2016

11

Sector Update | Telecom

Exhibit 10: Gross Revenue Market Share (%)

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

Karnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Bharti

34.1%

23.8%

26.6%

18.5%

16.3%

41.0%

48.4%

33.2%

14.9%

30.6%

17.8%

21.0%

28.3%

46.1%

23.1%

32.6%

44.9%

46.3%

41.5%

36.8%

47.7%

40.4%

Vodafone

27.3%

33.4%

33.6%

26.0%

37.8%

10.3%

13.9%

23.6%

22.6%

18.0%

27.7%

22.2%

28.7%

22.0%

9.7%

36.7%

9.9%

14.4%

17.3%

21.7%

16.6%

9.6%

Idea

12.0%

10.3%

7.6%

33.1%

22.8%

24.7%

11.4%

6.2%

41.9%

30.6%

27.1%

31.7%

14.1%

14.5%

41.8%

9.4%

13.3%

14.5%

5.8%

5.3%

4.6%

7.1%

Reliance Jio

0.0%

Source: dot; MOSL, Company

Not present in circles

4g LTE

3g

Both

For Reliance Jio Not present in circles (excluding 2300mhz

Min 10Mhz of owned

Min 5Mhz of owned

Exhibit 11: Total spectrum investments required (INR m)

Bharti

Vodafone

Idea

Rjio

Total

31,200

85,060

151,414

99,322

366,996

Source: dot; MOSL, Company

11%

31%

54%

36%

30 September 2016

12

Sector Update | Telecom

Exhibit 12: Band-wise Spectrum Prices (INR m)

1800 Mhz (available)

Circles

Delhi

Mumbai

Kolkata

MH

Gujarat

AP

arnataka

Tamil Nadu

Kerala

Punjab

Haryana

UP W

UP E

Rajasthan

MP

WB

HP

Bihar

Orissa

Assam

NE

J&K

Total

Quantity

12.8

5

4

13.4

13

4.4

4.2

0

2

15.4

7.4

14.6

5.4

11

4.6

18.4

11.4

12.2

1.4

18

9.2

32

219.8

Price

3990

2980

1490

3180

2380

2430

1850

0

830

770

470

960

1150

910

830

460

160

620

380

400

110

130

26480

2100 Mhz

(available)

Quantity

Price

20

15

20

15

20

15

360

5540

4610

1160

3410

2580

2720

3280

3440

1770

910

550

1110

1100

1400

1230

520

200

860

380

460

120

110

37460

2300 Mhz

(available)

Quantity

Price

20

0

20

0

320

1430

1460

330

580

390

680

980

1320

160

0

80

50

10

60

40

20

10

0

7600

2500 Mhz

(available)

Quantity

Price

40

20

600

1430

1460

330

580

390

680

980

1320

160

210

80

120

90

60

80

50

10

60

40

20

10

8170

700 Mhz

(available)

Quantity

Price

35

770

15950

11920

5960

12720

9520

9710

7400

9000

3340

3080

1860

3840

4590

3640

3310

1830

640

2480

1520

1580

440

520

114850

800 Mhz

(available)

Quantity

Price

2.5

5

2.5

7.5

6.25

7.5

2.5

6.25

1.25

2.5

3.75

7.5

2.5

1.25

3.75

2.5

3.75

0

73.75

8480

7270

1600

7990

2850

6060

3030

3600

2430

1190

570

1820

2190

2040

4080

820

240

1360

570

0

58190

9.4

26320

Source: dot, MOSL

4.6

4440

1.2

0.6

7390

7760

3

6730

900 Mhz

(available)

Quantity

Price

30 September 2016

13

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Sector Update | Telecom

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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

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30 September 2016

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025

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Motilal Oswal Securities Ltd

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