India - TRAI has recommended operators be charged for spectrum which drive down share prices

[economic times] Shares of telecom sector were beaten down badly as the market reacted sharply to the recommendations of the Telecommunications Regulatory Authority of India. According to analysts these recommendations are yet another headwind for the sector and if implemented will be big negative for GSM players like Bharti Airtel and Idea whereas Reliance Communications and Tata Teleservices are less likely to be hit badly.

Karvy Stock Broking

“We believe TRAI's proposal to charge operators for spectrum over and above the contracted spectrum is a negative for Bharti and Idea, given that they hold spectrum above the contracted limit in 13 and 6 circles, respectively. On the other hand, RCOM holds excess spectrum in just one circle - Bihar.

Given the steep bidding being witnessed in the ongoing 3G spectrum auction, the amount of money they will have to cough up as excess spectrum is significant as per our calculations, at over Rs 52 billion for Bharti and nearly Rs 18 billion for Idea, while RCOM is likely to pay just Rs 174 million,” said Karvy Stock Broking note.

KIM ENG Securities India

KIM ENG Securities India is of the view that rising license/spectrum costs and declining earnings are cause of concern for Indian telecom sector. It has recommended selling Bharti Airtel and Idea.

“The government could move on the proposal this quarter and generate revenue of Rs 105 billion. Given the concerns about rising license/spectrum costs and declining earnings, we maintain ‘Underweight’ for the telecom sector and recommend SELL for BHARTI and IDEA,” the note said.

Anand Rathi

According to Anand Rathi these recommendations are unlikely to be implemented in totality in their current form. It has a cautious view on the sector.

“Our initial take is that these recommendations are unlikely to be implemented in totality in their current form, given their significantly negative implications for incumbent GSM telcos. The recommendations are pro-new entrants, and pro-CDMA incumbents (dual technology operators) like RCOM, Tata.

We believe belatedly charging for spectrum creates avoidable uncertainty in a sector already roiled by irrational competition. Further, there seems to be little justification for using 3G bids for pricing 2G spectrum, as the former are driven more by scarcity and lack of a transparent spectrum roadmap. We maintain our cautious sector view,” the update said.

Prabhudas Lilladher

“TRAI recommendations on charging the excess spectrum at the discovered price through 3G auctions is rather aggressive since recently 2G licences (4.4 MHz) were allotted at Rs 16.5 billion to new entrants. However, with 3G bids reaching Rs 140 billion for pan India, the recommendations will develop negative sentiment for stocks of Bharti Airtel & Idea Cellular over the short term.

Competitive landscape and crowded telecom market would weigh for sometime on telcos before consolidation kicks in. Tariffs which have stabilised over the last two months would see next round of cuts, with MNP implementation scheduled over the next 2-3 months.

Telcos are in a dizzy spot, with falling realizations and rising cost for running networks, thus, straining margins. We continue to maintain our Reduce rating on the sector,” the research note said.

At 11:40 am, Idea Cellular was down 6.77 per cent, Bharti Airtel fell 6.57 per cent, Tata Teleservices Maharashtra declined 4.15 per cent and Reliance Communications slipped 1.67 per cent.

TRAI recommendations big negative for Bharti, Idea: Analysts