Battle For The Market: Reliance Or Bharti?

[abhay 0]

Battle for the market: Reliance or Bharti?

The race for No 1 is getting hotter. For most of 2006, the battle for marketshare in the mobile telephony space has seen Bharti Airtel and Reliance Communications running neck-and-neck, with one competitor in the lead at some point and the other catching up later. The only thing clear is that both No 1 and No 2 are putting some distance with No 3 - the state-owned Bharat Sanchar Nigam Ltd (BSNL).

As at the end of August, 2006, Bharti is a nose ahead with 20.8% of the market, while Anil Ambani’s Reliance Communications comes a close second at 20.1%. BSNL, which was a joint No 2 in March, is now a good 2% behind Reliance at 18.2%. While acquisitions and mergers within the industry can jolt the pecking order anytime, for the last four months running Bharti has managed to edge ahead of Reliance after trailing it for most of 2005-06. Is that the reason why Reliance is now bidding for a GSM (Group System for Mobile) licence, so that it can enter another horse in the race to topple Bharti?

The head of research at HDFC Securities, Deepak Jasani, links the prospect of Reliance Communications emerging as the top mobile player with Ambani’s proposed GSM rollout. “The wireless subscriber base of Reliance Communications could overtake that of Bharti in the second or third quarter of the financial year 2007-2008, when Reliance rolls out its GSM mobile service across the country,” Jasani says.

Despite the new gambit, telecom analysts are betting on Bharti retaining its edge in the near future. Says VK Sharma, head of research at Anagram Stock Broking: “Bharti will remain a leader for at least the next two years”. By leader Sharma is referring to both revenues and subscriber numbers. “Reliance Communications’ costs will go up considerably due to infrastructure investment in its pan-India GSM rollout,” he points out.

Currently, Bharti is the only mobile player with a presence in all 23 circles in India. Reliance has its CDMA (code division multiple access) operations in 21 circles, and GSM in eight. But it has recently applied to the government for GSM spectrum across the country, barring the north-east and Assam.

The battle, though, is not just about subscriber numbers, but their quality. When DNA Money spoke recently to Sunil Mittal, chairman and managing director of Bharti Enterprises, he admitted that there can be “ups and downs in terms of subscriber numbers”. And while “it is a legitimate aspiration to be in the top position, it’s not just about customer numbers. Even revenues are very important. In revenue leadership terms, we are far ahead of the others”.

P Phani Shekhar, telecom analyst at Angel Broking, says that Reliance may need two years before it can overtake Bharti. Reliance is strong in B and C circles, where one will witness continuous growth. On the other hand, Bharti is strong in the metros and A circle cities, where mobile penetration levels are relatively much higher, and the growth rate is dipping. So, moving forward, Reliance is expected to get good numbers from B and C circles, according to Phani Shekhar. But, it is unlikely to overtake Bharti in terms of profitability, citing the class-versus-mass logic.

A circles include Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu, while B includes Kerala, Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and West Bengal. C includes Himachal Pradesh, Bihar, Orissa, Assam, the north-east and Jammu and Kashmir.

As on August 31, 2006, Bharti had 25.65 million mobile subscribers, according to a Morgan Stanley report. Reliance, which started operations seven years after Bharti in 2002, had a mobile base of 24.76 million, of which CDMA mobile accounted for 22.03 million and GSM 2.73 million. BSNL is the third largest mobile operator in the country with 20.06 million GSM subscribers.

As for month-on-month subscriber growth, between the end of July and August, 2006, Bharti’s growth was at 5.4% while Reliance was behind at 4.9%. BSNL’s growth rate is below that at 4.8%. Leading the wireless month-on-month growth at this point is Tata Teleservices with 7%, followed closely by Idea Cellular at 6.7%.

Industry data show that as at the end of the second quarter of the financial year 2005-2006, Bharti had 14.1 million wireless users, while Reliance had a higher base of 14.9 million. Reliance maintained its lead till the end of the financial year, but Bharti took over in the first quarter of this financial year (2006-07).

As for investment plans, Bharti wants to increase coverage to all 5,200 census towns by March, 2007. The capital expenditure planned for that is around $1.8-2 billion. Reliance Communications is learnt to be planning an investment of Rs 2,500 crore (over $500 million) just for the Delhi and Mumbai GSM forays.

But Bharti clearly is more profitable. The company announced a net profit of Rs 755 crore for the first quarter ended June 30, 2006, on consolidated total revenues for the same period of Rs 3,856 crore. In its first quarter results for 2006-07, Reliance Communications showed revenues from the wireless segment at Rs 2,432 crore and a consolidated net profit of Rs 513 crore taking all segments-wireless, broadband and global -into account.

Bharti’s higher profitability emanates from its higher per capita earnings. In the first quarter of 2006-07, Reliance’s average revenues per user (ARPUs) have remained consistent at Rs 379 while Bharti’s was at Rs 441. However, Sunil Mittal says he is more concerned about business growth than ARPUs. “In the mobile business, we are not focusing on ARPUs. As long as smaller customers are coming in, there’s no problem.”

While the battle rages in India, both Bharti and Reliance Communications have strong global visions for their wireless businesses. While Bharti already has operations in Seychelles, it is exploring opportunities in Sri Lanka, Bhutan and Bangladesh, among other places. Reliance is also keen on operations in Sri Lanka and Bhutan. Reliance, along with Mahanagar Telephone Nigam Ltd (MTNL), is also learnt to be scouting for business in Kenya.

While both players are going global, the globe is coming to India. Last year, the world’s largest mobile company, Vodafone plc, bought 10% in Bharti. Singtel has an even bigger stake in Bharti. Whichever foreign partner cashes out first will leave the other as the major stakeholder in Bharti. The race for No 1 is not going to end anytime soon.

http://www.dnaindia.com/report.asp?NewsID=1053826

Edited September 18, 2006 by abhay

[mehtakushal 1]

Reliance cares only about the MARKET SHARE and not about Customer satisfaction.

Recently I read in Hindustan Times: It was about a survey carried out by TRAI..........It said all Mobile Cos except TATA Indicom Passed the test for Customer Satisfaction

I am sorry............I meant only TATA indicom passed test........Rest all failed

[shashank 8]

Yes you must be wright as iam also an very much satisfied subscriber of tata!

India is having cheapest call chrges because the quality maintained by them is very.......very low.

i would vote for Reliance as it has better network quality.Airtel is horrible.I used Airtel for 2 months and was fed up of call drops.On top of that they had very high call charges.Airtel has highest no of sub in Karnataka even then!

Then i moved to Hutch,as i was attracted towards their tariffs.Eventhough its coverage ouside b'lore was horrible,it had better quality than Airtel.

But the problem with hutch is signals suddenly goes off for few sec and displays "Emergency Only".

And after using Hutch for around 2 months,i can say that it has got slightly advanced technology than Airtel.

Indian mobile operators should concentrate on quality rather than fighting for the top position.

Edited September 19, 2006 by shashank