Archive for the 'Telecom Sector' Category

04
Aug
12

Finally..decision on spectrum price

At last, decision has been made on 2G auction spectrum pricing. Cabinet yesterday decided that base price for 5 MHz of pan India spectrum would be 14,000 crore. Base pricing decision was pending with the Government for several months. As expected, Telecom operators across the board have started shouting about high base price. Most of them are complaining about unviable business case and higher call charges with such high base price.

It is doubtful that many of the new players will bid in this coming auction for 2G spectrum, except for Reliance Industries, Sistema or may be Uninor. Telenor has already decided to auction its asset in Uninor. Some incumbent operators already have lot of debt on their books, so it is unlikely that they will bid aggressively in this upcoming auction. Payment schedule allows some flexibility and operators can mortgage spectrum for bank loans. It’s another question whether banks would be willing to lend to highly leveraged players.

 

Eventual result may be reduction in competitive intensity of hyper competitive telecom sector. Number of operators in each circle might come down from current 10-11.  It goes without saying that Bharti Airtel would be the biggest beneficiary after all this dust settles. But joker in the pack would be RIL which would also be bidding in the upcoming 2G spectrum auction. With all its financial muscle, RIL would ensure that its launch is with bang. This might put cap on sharp increase in call charges which all incumbent players are shouting about. This Oil & Gas giant is the only company with pan India 4G license and would be desperate to acquire 2G license also.

There might be some negative reaction on Bharti stock in near future. But downside might be capped also considering that uncertainty is finally out. Upside is also capped considering that decision on one time fee for incumbents is still pending. There is chance to sell some strangles on Bharti.

 




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