BackSpate 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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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.
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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