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Headwinds for telecom stocks

Headwinds for telecom stocks
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First Published: Wed, Mar 09 2011. 11 47 PM IST
Updated: Wed, Mar 09 2011. 11 47 PM IST
The Telecom Regulatory Authority of India (Trai) says that the total number of requests for p mobile numbers stood at 3.8 million at the end of last month. The facility has been available since 20 January. This amounts to only about 0.5% of the wireless subscriber base in the country. Does this mean that mobile number portability (MNP) hasn’t had the expected impact on incumbent operators and tariffs in the post-paid segment?
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Not quite. It’s still too early to judge the impact. Wireless subscribers, especially in tier II towns, are still getting used to the operational modalities involved with porting numbers. One would have to wait for a few more months before assessing the impact of MNP. While post-paid tariffs don’t seem to have come under much pressure in the post-MNP phase, things may change going ahead.
Reports suggest that Vodafone Essar Ltd and Idea Cellular Ltd have been receiving a relatively higher share of porting requests. It shouldn’t be long before other operators change tariff structures to attract new customers and retain existing ones.
Also note that Bharti Airtel Ltd and Reliance Communications Ltd (R-Com) have both lost revenue market share in the past two quarters. Based on Trai data compiled by HSBCResearch, Bharti’s revenue market share has declined by 130 basis points (bps) in the past two quarters, while R-Com’s share has fallen by 80 bps. In the latter’s case, all of that drop happened in the December quarter. Idea’s market share, meanwhile, has risen by 30 bps, while Vodafone’s has dropped only 20 bps. Another quarter of underperformance may cause some large operators to revisit their pricing strategies.
Of course, wireless operators need to also contend with the costs involved with the launch of third-generation (3G) telecom services. This, too, will keep a check on margins and profit. Add to this the regulatory overhang on the sector and it’s not surprising that telecom stocks have underperformed the markets in the past month.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Wed, Mar 09 2011. 11 47 PM IST