Motilal Oswal Financial Services organised its Eight Annual Global Investor Conference 2012 between August 27 and August 31, 2012.

Telecom operators like Bharti Airtel, Idea Cellular, and Reliance Communications participated in the conference. The conference hosted a chief executive officer session, where the operators expressed their issues and concerns related to the telecom industry.

Motilal Oswal also released a report on current status of telecom industry, following the conference. The key highlights of the conference and report are:

The industry is taking corrective measures to contain channel commissions. However, sustenance remains a key concern.

  • Driving revenue growth could be challenging in the current environment.
  • Issues related to spectrum pricing to be addressed once 2G auction concludes.
  • GSM incumbents have reduced the channel commissions paid for subscriber acquisitions from August 2012 which should drive reduction in cost of customer acquisition (COCA).
  • The operators would refrain from ?negative landing? so as to rationalise the incentive structure and discourage mis-selling by the channel. If sustained, the initiative should alleviate margin pressure by controlling ?rotational churn? but would also impact subscriber additions/traffic/revenue in the near-term.
  • Given the mixed success of prior corrective actions like tariff increases undertaken in July 2011, the sustenance of these measures in the current hypercompetitive environment would be the key.
  • The monthly subscriber additions and traffic/revenue growth in second quarter of 2013 to remain muted given industry initiatives to control sales and distribution expenses. The channel checks confirm sluggish traffic trends in the second quarter of 2013 due to seasonality and corrective measures taken on the COCA front.
  • While reduced channel commissions should support margins (potential cost savings of 100bp), it will likely be offset by negative operating leverage from muted revenue growth in the near-term.
  • The industry expects uncertainty on spectrum pricing to be conclusively resolved post the 2G spectrum auctions scheduled in November 2012.
  • Most operators are expected to follow a circle wise strategy in the auction.
  • Apart from the final auction price, the key factors to watch out for are:
  • Approach of major incumbents towards auction participation (given their stance that reserve price is exorbitant).
  • Potential participation of Reliance Industries.
  • Placing Neutral rating on Bharti, maintain buy on Idea, neutral on RCom.

To read complete report click here