Analyst Commentary

• The GMSA has criticised the TRAI's spectrum auction plans—particularly the reserve price.
• Meanwhile active 3G usage is picking up, judging by Idea's latest numbers.

Today we focus on 3 developments:

• 2.6 Million Active 3G Subscribers for Idea Cellular: Idea Cellular notes that at the end of March 2012 it had around 2.6 million active 3G subscribers. This represents around 2.4% of its active mobile subscriber base of 102.9 million (at the end of February, according to TRAI data). The operator's total subscribers grew 25.9% over the year to 112.7 million at the end of March, while both ARPU and revenue per minute remained stable. Idea now generates around 14.3% of its ARPU from value-added services, which equates to around USD0.4 per month per customer. As well as expanding coverage, the operator has started offering its own-branded 3G handsets: currently its post-paid 3G handset usage-based plans range from USD1.9 for 100-MB of data to USD23.5 for 5-GB of data.
• GSMA Warns India on Auction Plans: The GSMA has told the TRAI that its plans for the auction of spectrum threaten mobile broadband investment and deployment in India. The GSMA has taken particular issue with the "prohibitively high" reserve prices for upcoming spectrum auctions, which it believes will lead to operators curtailing investment in mobile broadband and raising prices. It also complains that plans to refarm 1.8-GHz spectrum for holders of 900-MHz spectrum will lead to an artificial 1.8-GHz spectrum shortage in the upcoming auctions.
• Strong Mobile Sales for Samsung in Q1 2012: Samsung has reported an 86% y/y increase in mobile sales in the first quarter of 2012. This is on the back of smartphone shipments of 32 million, up from 13 million in the first quarter of 2010, according to IHS data. Smartphones now account for nearly 35% of Samsung handsets shipped, compared to 14.5% at Nokia and 28.5% at LG. Samsung has also reached the symbolic milestone of having eclipsed Nokia to become the world's largest handset provider in terms of shipments, and is driving its Galaxy brand further into LTE, a segment as yet untapped by Apple, the world's leading smartphone vendor. Unlike Nokia, which has put all of its eggs into one basket with the Windows Phone platform, Samsung's exploitation of multiple operating systems is paying dividends.

Our Take

GSMA is making the broad point that setting the cost of spectrum high will curtail mobile broadband investment and therefore risk the economic benefits of deployment and adoption of 3G and 4G networks and services. A similar argument could be made for apparent attempts to claw back taxation from Vodafone. These efforts may help to cut India's fiscal deficit in the short term could cost the economy and future tax returns dearly over the next few months.

The reserve prices for 1,800-MHz and 800-MHz spectrum have also been criticized as excessively and potentially damaging by a number of operators and industry associations. The cost of 1-MHz of nationwide 1,800-MHz spectrum is just shy of 10 times the amount paid by operators in 2008. It is also marginally higher than the cost of 3G spectrum auctioned in 2010. The TRAI anticipated such objections and has justified the higher price based on international benchmarks, the 20-year tenure of spectrum and the likely technology neutrality of this spectrum. It’s no surprise that the GSMA supports the prevailing operator view.

Idea's recent numbers also support the trend towards increasing uptake of 3G services. There's still a significant gap between customers owning 3G handsets and actively using 3G internet services. Idea's 2.6 million represents the latter and marks an increase in active 3G subscribers of over 2 million since the 0.47 million reached at the end of June 2012. Bharti Airtel, which has yet to report its numbers for the first quarter of 2012, had an installed base of some 8 million 3G handset subscribers, of which 28% or 2.24 million were active internet users at the end of 2011. By the same period Reliance, which operates both W-CDMA and CDMA-based 3G networks, had around 2.8 million 3G subscribers, and has recently said that it will push the Android platform with the aim of realising further gains in the 3G space.