Mumbai: Investors dumped shares of telecom companies for a second day in a row on fears that the telecom regulator’s proposals on spectrum pricing may increase expenditure and hurt profits. Analysts warned that these stocks could slide further if the regulator’s recommendations are implemented in the current form.
On Wednesday, Bharti Airtel Ltd’s scrip fell 8.29% to Rs261.55, its lowest in at least three-and-a-half years. Idea Cellular Ltd’s shares hit a five-month low as it shed 8.21% to Rs54.8. Tata Teleservices (Maharashtra) Ltd lost 3.23% on a day when the broader market ended up marginally.
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The exception was Reliance Communications Ltd that gained 0.41%.
On Tuesday, the Telecom Regulatory Authority of India (Trai) recommended that existing telecom firms with spectrum of more than 6.2MHz would have to pay a one-time fee based on 3G prices for the remaining years that they have licences.
Analysts said the worst effected players would be Bharti, Vodafone, Idea and the unlisted Bharat Sanchar Nigam Ltd.
“According to initial estimates, Bharti and Idea would have to incur a one-time cost of Rs3,345 crore and Rs1,344 crore in terms of spectrum fees,” wrote Karan Mittal and Naval Seth of ICICI Securities in a 12 May note.
“This would result in Rs8.8 and Rs4.1 impact on financial year 2011 estimated earnings per share for Bharti and Idea, respectively,” they added.
“There is merit in some of the recommendations, especially those aimed at spectrum re-farming and those intended to promote spectrum trading, but obviously it also puts additional cost burden on the telecom operators,” said Sandeep Ladda, executive director at PricewaterhouseCoopers. “Larger operators could end up paying thousands of crores of rupees,” he added.
Spectrum re-farming involves moving existing mobile telephony services from a particular band to a higher frequency band.
Trai’s proposal on moving from the 900MHz band to 1,800MHz and 2,100MHz band would mean additional capital expenditure for telecom operators as they would have to revamp their existing network equipment and technology to operate in the new band.
This additional burden could bump up capital expenditure by up to 50%, said an analyst, who didn’t want to be identified.
If the Trai recommendations are approved and implemented in the current form, the stocks could see a further slide, said another analyst with a Mumbai-based brokerage. He also didn’t want to be named as he’s not authorized to speak with the media.
(Ashwin Ramarathinam contributed to this story.)
Graphics by Yogesh Kumar / Mint