MNP to result in bloodbath on the bourses

Mobile number portability (MNP) is much-awaited by subscribers, and it is certainly going to make business challenging for service providers.

“We estimate a 6-9% decline in ARPUs, a 50-82 bps negative impact on margins and consequent EPS declines to the tune of 8-39% in FY 2010-11, with consequent changes in target prices by 7-22%. We remain negative on the sector and maintain `under performer' ratings on Bharti Airtel (downgrade target price from Rs 289 to Rs 269) and RCOM (downgrade target price from Rs 167 to Rs 151), while we downgrade Idea Cellular to `sell' from `under performer' (downgrade target price from Rs 45 to Rs 35),” says telecom sector event update of Karvy.

According to the report, the churn rates are already in the region of 4-5% (prepaid subscribers), and with the coming of MNP they are further likely to increase. Further the spectrum crunch in the key metro service areas is likely to lead to higher churn rates in this segment. For the industry, in the first quarter of this financial year, blended ARPUs of the metro service areas for GSM segment is Rs 221 per user per month, while the overall blended ARPU is Rs 185. “This is a big negative, given the higher ARPUs, and revenues that subscribers in these circles provide to operators,” says the report.

Further operators are likely to experience an increase in the higher subscriber acquisition and retention costs since they would have to offer more freebies to ensure that high ARPU generating customers stay with them. “The end impact of this scenario is likely to be a fall in revenue growth, margins, and EPS of telcos,” according to the report.

Since the cost of porting is Rs 19 (much lower than the earlier Rs 75-200 as reported), it is likely to lead to an increase in the churn rate post MNP regime.

While Bharti Airtel and RCOM will be able to sustain since the base is large, and they have a country-wide network. “We expect Idea Cellular, given its lower scale as compared with Bharti and RCOM to be impacted more, especially in the event of its losing high-value and more sticky post-paid subscribers. Overall, we believe MNP will be an additional `pressure point' for telecom companies and even as it is an overall zero-sum game, it will be margin-dilutive,” says the report.

gagandeepk@cybermedia.co.in