Spate of bad news expected to continue in the telecom sector

Spate of bad news expected to continue in the telecom sector
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First Published: Sun, Nov 22 2009. 09 45 PM IST

Updated: Sun, Nov 22 2009. 09 45 PM IST
The decision by Bharti Airtel Ltd to cut roaming charges by around 60% got significant press and its shares weakened further. But analysts tracking the company had already factored in a drop in roaming tariffs. After all, Reliance Communications Ltd’s “Simply Reliance” plan offered roaming at the rate of 50 paise per minute. Even after the sharp cut in its roaming rates, Airtel’s tariff is still higher at 60 paise?per?minute.
So it was more a question of when rather than if various tariffs will be cut. Thus far, much of the price cuts have centred on call rates for prepaid customers. Prices in non-voice segments such as SMS are also expected to be lowered. Besides, price cuts are happening gradually even for the postpaid segment, with per-second billing plans extended to this segment as well.
Postpaid users form the cream of the subscriber base for telecom companies, and generate much higher Arpu (average revenue per user) compared with prepaid users. Lower tariffs for this segment will lead to a further drop in revenue and profit.
Graphics: Naveen Kumar Saini / Mint
What will speed up this process is the government’s decision to introduce number portability by the end of this year. With competition set to get even more intense with the entry of new players such as Emirates Telecommunications Corp., or Etisalat, and Telenor SA, telecom companies will aggressively go after customers of rival networks. The fact that customers would be able to retain their phone numbers will only encourage this.
Coming back to the drop in Bharti’s roaming rates, it must be noted that national roaming accounts for 5% of the company’s mobile revenues, according to an analyst. In other words, in itself it won’t cause a huge drop in profit. But the development has led to negative sentiment among investors, since the trend of falling tariffs has been confirmed.
Bharti’s share price of Rs289 is close to its yearly lows, but isn’t likely to find many takers considering that the spate of bad news is expected to continue. As and when new operators start services, there may be a fresh bout of tariff cuts, and there could be a similar result when number portability gets operational. In the interim, markets may provide decent opportunities to pick up good telecom stocks such as Bharti at attractive valuations as long-term investments.
Write to us at marktomarket@livemint.com
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First Published: Sun, Nov 22 2009. 09 45 PM IST