Idea Cellular is doing a better job of monetizing 3G as its revenue per 3G base station is c34% higher versus Airtel (despite having more metro centric presence Airtel has only 4% higher 3G subscribers versus Idea).
3G accounts for c77% of Idea’s total data revenues (versus c55% for Airtel) and in markets where Idea owns 3G spectrum, 3G revenues account for 15% of total revenues (versus 10% in case of Airtel, in our calculations). Airtel’s overall data revenues were 71% more versus Idea in FY15e suggesting that Airtel data revenues are more 2G driven. That said, with pan India 3G spectrum post recently concluded spectrum auctions, Airtel is better placed to upgrade the exiting large 2G subscriber base to 3G platform and incrementally better placed to benefit from data growth. Additionally, from a medium-term perspective Bharti’s ability to launch 3G in 900 towns will be an additional positive.
Lack of 3G may hurt Idea’s subscriber additions as we expect the 2G data market to decline to c30% from the present c70% over the next 2 years driven by a sharp decline in 3G handsets price. Indian government may auction a residual 15MHz of 3G spectrum this fiscal year and this may leave Idea with little choice than to add 3G spectrum in the rest of the markets which will be margin dilutive for Idea as data deployment may require investment in pure data sites / higher capex.