Telecoms turn feeble as new regime kicks in

Telecom stocks were under pressure on Thursday as mobile number portability (MNP) was introduced pan-India on Wednesday.

According to analysts, the portability is expected to increase the operating cost of telecom companies.

Market experts say the incremental impact would be 100-150 basis points for established players and 200-250 basis points for new generation service providers, primarily because telecommunication companies will have to increase efforts to retain customers.

Ambit Capital said better service quality and improved customer care are key to customer retention. Here, the established players who have already invested heavily in infrastructure and after-sales service had a clear edge over the new generation companies, who would now have to invest on similar lines.

“The market is sure to witness an increase in loyalty schemes and improved after-sales service,” said a telecom analyst at a large Indian brokerage.

However, experts cautioned that the euphoria on MNP would not last for over a month or two.

Experts point out that it would result in a zero-sum game for the big three telcos — Bharti Airtel, Vodafone and Idea — and not necessarily expand the market.

In a zero-sum game, one company would gain at the expense of the others.

With monthly churn rates in the pre-paid business in the range 6 to 8 per cent and post-paid business at 1 to 3 per cent a month, analysts do not expect a significant change in the numbers.

“Pre-paid users anyway change their service providers frequently, MNP notwithstanding,” said a telecom analyst at a large Indian brokerage. “It is the post-paid customer who these companies should really concentrate on, given the fact that MNP has kicked off along with the launch of 3G services. And it would make sense for post-paid users to switch to telcos that offer 3G services.”

Though call-drop rates in India are among the highest in the world, post-paid user would not shift too easily as they are relatively more brand conscious.

It is going to be an uphill task for the newer operators as they have only 45,000 cell sites with them, whereas the bigger ones have a large number of cell sites. For instance, Airtel has one lakh cell sites and Idea has 76,000-80,000 cell sites.

The bigger companies have a larger share of post-paid customers — a major source of EBITDA margin, said experts. This could shrink only if their corporate customers start renegotiating call charges for group connections given to employees.

Of the five listed telecom companies, Bharti Airtel, Idea and MTNL closed in the red, Tata Teleservices remained unchanged, while RCom was the only one to close in the green on Thursday.

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