TRAI proposals weaken telcos

Our Bureau | | Updated on: Feb 12, 2011

Telecom stocks Idea Cellular and Bharti Airtel closed the day in the red, Idea slipping by 2.19 per cent to close at Rs 64.85 on the BSE and Airtel sliding 2.8 per cent to close at Rs 323.05, as the Telecom Regulatory Authority of India's new recommendations on 2G spectrum pricing will force mobile operators to pay hefty amounts for spectrum they are holding.

One-time spectrum fee

The TRAI recommendations regarding incremental licence fees to be paid by operators for 2G spectrum is sure to raise a storm if implemented, say market experts.

Though the one-time spectrum fee is expected to raise Rs 16,000 crore for the exchequer, it is easier said than done, said experts. “Companies like Bharti Airtel and Idea would rather spend on capex with respect to adding towers, cell sites and operating expenditure rather than paying an incremental licence fee,” said a telecom analyst at a large Indian brokerage.

“This is all the more significant because 30–35 per cent of this one-time payout would be applicable for operators in the metros,” he added.

It is a known fact that the lower frequencies used by service providers give coverage over a larger area, while at higher frequencies, the area covered is smaller. “This has a bearing on the capital expenditure and operating expenditure of telcos,” said a telecom analyst at another Indian brokerage.

The reason why foreign players could not participate in the 3G auction was because the 5 Mhz spectrum allocated per player is not enough by itself to seamlessly carry voice and data. Hence those players which had existing 2G networks had an advantage over the others, said experts.

Though the TRAI proposal to cancel licences would free some existing spectrum, and the increased supply of spectrum will lead to a fall in spectrum prices, said analysts.

Regulatory concerns

As regulatory concerns on this sector loom large, it would continue to put off investors, they said. Spectrum quality is a pre-requisite for efficient cost structures in this business. With margins already having dropped from 40 per cent to 33 per cent for large telcos due to competition, any further change in the spectrum mix would only have a negative impact on long-term profitability, said experts.

Published on February 10, 2011
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