Tata Teleservices (M) Ltd. had won 3G spectrum for Rest of Maharashtra (RoM) circle in the auction held in 2010. TTML was also the first operator to launch 3G services in select locations in November'2010. But surprisingly TTML did not expand it's 3G coverage beyond some 12 to 15 cities & towns in the state since June'2011. At that point of time, TTML had a wireless subscriber base of 10.51 million in RoM circle, but only 5.1 million of those were active on the network as per VLR records. That means, a little over 50% of TTML's RoM subscribers were useless to the company & were unnecessarily adding costs.
TTML immediately started deleting such inactive subscribers as well as those who were generating very low unsustainable revenues. Within a year, i.e. by June'2012, TTML's wireless base in RoM circle was down to 8.17 million, while the active base had improved to 5.46 million (67% active). TTML did not stop there & has continued this clean up act every month. As per the latest data available for September'2013, TTML's wireless base is down to just 6.07 million in RoM circle, while it's VLR active base is at 4.87 million (80% active). TTML's clean-up act was not restricted to just the RoM circle, even it's Mumbai subscriber base dropped from 6.17 million in June'2011 to just 3.42 million in Sept'2013, while it's VLR base has remained steady from 2.28 million (37% active) to 2.38 million (70% active). The following chart shows the combined effect of both the circles clean-up:
The combined VLR base for TTML now stands at 7.21 million, 76% of the company's total subscriber base. This is a healthy figure & the company will now look forward to strengthening this by improving it's Network Coverage, which will improve user experience & encourage more of it's subscribers to continue with it's services. TTML has already started on this path. In the first two quarters of the current fiscal, TTML has added some 1500 new Base stations across the RoM circle. And aims to add another 600 Base stations in the coming months. This network expansion has helped improve it's 2G coverage in more villages & highways as well as it's 3G coverage in many more cities and towns. TTML's 3G coverage has expanded from just about 15 locations at the end of March'2013 to 108 locations by September'2013. All big cities & major highways in RoM have been covered. But still many of the large towns are yet to be covered by Tata DoCoMo's 3G network. I am hoping that most of them will get it by the end of this fiscal. The company had boosted it's coverage in Mumbai circle in the previous fiscal.
There are some advantages & disadvantages of this late expansion of 3G network. Major advantages are lower equipment costs & more time for better planning in network rollout. India is experiencing a terrific growth in Smartphone usage. This is going to boost usage of mobile internet services. Many Smartphone users may initially start with 2G services, but will eventually upgrade to 3G. The cost differential between 2G & 3G internet services is reducing as operators are hiking prices of 2G data plans. It makes sense for the operators to eventually make 3G data plans cheaper than 2G ones because the customer will use lot more data on 3G in less time because of the speed advantage. So it costs the operator much less to enable a customer use something like 5GB data usage on it's 3G network than it's 2G network as the customer will be using just about one-tenth of the network time on 3G compared to 2G. That means the operating cost is lower on 3G. I am not expecting prices of 3G data plans coming down, but operators could increase data usage limits on existing plans.
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TTML's stock price has been on a downtrend since July'2011, when it had peaked around the Rs.20 level. Since then it has made lower tops & lower bottoms and it's 200-days moving average (DMA) has acted as a strong resistance throughout this period. Right now TTML's share price is close to the Rs.7.50 level and is making another attempt to go above the 200-DMA. If it manages to get past & stay above the 200-DMA for atleast a week or so and then get past it's previous high of about Rs.9.20/-, then we can safely say that the stock has reversed it's trend. I am optimistic that TTML's share price will get into a gradual uptrend this time. The company's upcoming Q3 & Q4 results should also be positive as they will start reflecting the company's network expansion efforts. In the month of Sept'2013 alone, TTML's VLR base has jumped by 1.63 lakh, the biggest jump since June'2012. The coming months should also show a positive development on this front.
It is difficult to set a target price for TTML. There could be lots of developments in store for the company as well as the Telecom sector in general. The most eagerly awaited M&A guidelines for this sector are just around the corner. Once there is clarity on that front, we will see some solid action by some of the operators. TTML & TTSL could be in the middle of some hectic M&A activity. All that should ultimately be positive for the company & it's shareholders. But there is one threat to the company as well: Reliance Jio's 4G launch. The network coverage & pricing of it's services and availability of devices will decide how much market share all other operators will lose to Reliance Jio. Since TTML derives over a third of it's revenues from Wireless Data business, it could be one major victim of Reliance Jio. But then none of these 3G competitors are going to sit idle. If Reliance Jio does come out with aggressive pricing, most of these 3G players will try & match that. It will be an interesting war & we the consumers will be the ultimate beneficiary.
TTML immediately started deleting such inactive subscribers as well as those who were generating very low unsustainable revenues. Within a year, i.e. by June'2012, TTML's wireless base in RoM circle was down to 8.17 million, while the active base had improved to 5.46 million (67% active). TTML did not stop there & has continued this clean up act every month. As per the latest data available for September'2013, TTML's wireless base is down to just 6.07 million in RoM circle, while it's VLR active base is at 4.87 million (80% active). TTML's clean-up act was not restricted to just the RoM circle, even it's Mumbai subscriber base dropped from 6.17 million in June'2011 to just 3.42 million in Sept'2013, while it's VLR base has remained steady from 2.28 million (37% active) to 2.38 million (70% active). The following chart shows the combined effect of both the circles clean-up:
The combined VLR base for TTML now stands at 7.21 million, 76% of the company's total subscriber base. This is a healthy figure & the company will now look forward to strengthening this by improving it's Network Coverage, which will improve user experience & encourage more of it's subscribers to continue with it's services. TTML has already started on this path. In the first two quarters of the current fiscal, TTML has added some 1500 new Base stations across the RoM circle. And aims to add another 600 Base stations in the coming months. This network expansion has helped improve it's 2G coverage in more villages & highways as well as it's 3G coverage in many more cities and towns. TTML's 3G coverage has expanded from just about 15 locations at the end of March'2013 to 108 locations by September'2013. All big cities & major highways in RoM have been covered. But still many of the large towns are yet to be covered by Tata DoCoMo's 3G network. I am hoping that most of them will get it by the end of this fiscal. The company had boosted it's coverage in Mumbai circle in the previous fiscal.
There are some advantages & disadvantages of this late expansion of 3G network. Major advantages are lower equipment costs & more time for better planning in network rollout. India is experiencing a terrific growth in Smartphone usage. This is going to boost usage of mobile internet services. Many Smartphone users may initially start with 2G services, but will eventually upgrade to 3G. The cost differential between 2G & 3G internet services is reducing as operators are hiking prices of 2G data plans. It makes sense for the operators to eventually make 3G data plans cheaper than 2G ones because the customer will use lot more data on 3G in less time because of the speed advantage. So it costs the operator much less to enable a customer use something like 5GB data usage on it's 3G network than it's 2G network as the customer will be using just about one-tenth of the network time on 3G compared to 2G. That means the operating cost is lower on 3G. I am not expecting prices of 3G data plans coming down, but operators could increase data usage limits on existing plans.
.png)
TTML's stock price has been on a downtrend since July'2011, when it had peaked around the Rs.20 level. Since then it has made lower tops & lower bottoms and it's 200-days moving average (DMA) has acted as a strong resistance throughout this period. Right now TTML's share price is close to the Rs.7.50 level and is making another attempt to go above the 200-DMA. If it manages to get past & stay above the 200-DMA for atleast a week or so and then get past it's previous high of about Rs.9.20/-, then we can safely say that the stock has reversed it's trend. I am optimistic that TTML's share price will get into a gradual uptrend this time. The company's upcoming Q3 & Q4 results should also be positive as they will start reflecting the company's network expansion efforts. In the month of Sept'2013 alone, TTML's VLR base has jumped by 1.63 lakh, the biggest jump since June'2012. The coming months should also show a positive development on this front.
It is difficult to set a target price for TTML. There could be lots of developments in store for the company as well as the Telecom sector in general. The most eagerly awaited M&A guidelines for this sector are just around the corner. Once there is clarity on that front, we will see some solid action by some of the operators. TTML & TTSL could be in the middle of some hectic M&A activity. All that should ultimately be positive for the company & it's shareholders. But there is one threat to the company as well: Reliance Jio's 4G launch. The network coverage & pricing of it's services and availability of devices will decide how much market share all other operators will lose to Reliance Jio. Since TTML derives over a third of it's revenues from Wireless Data business, it could be one major victim of Reliance Jio. But then none of these 3G competitors are going to sit idle. If Reliance Jio does come out with aggressive pricing, most of these 3G players will try & match that. It will be an interesting war & we the consumers will be the ultimate beneficiary.
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