rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » Excess spectrum payout negative for telcos

Excess spectrum payout negative for telcos

October 10, 2012 12:56 IST
There's no end to negative news as far as the telecom sector is concerned. Regulatory missiles continue to hit with alarming frequency.

Shares of Idea and Bharti moved up on Monday as news trickled in that the one-time fee that telecom operators would have to pay would be prospective and not retrospective. But that's where the good news ended.

The empowered group of ministers on Monday also recommended GSM operators pay a one-time fee for spectrum held beyond 4.4 MHz, while CDMA players should pay for spectrum held beyond 2.5 MHz.

The price of the excess spectrum would be determined on the basis of the outcome of the coming 2G spectrum auctions. Analysts say this is not a positive for the sector as the payouts remain unchanged for Bharti Airtel at Rs 4,200 crore.

For Idea, it is worse, as the payout will go up from the estimated Rs 1,400 crore to Rs 1,960 crore.

The net impact on Idea, analysts claim, will be lower, as the company will be refunded the money it paid for the cancelled licences. Brics Securities says: "The EGoM has also decided to refund companies whose licences have been cancelled by the Supreme Court. This should result in a refund of Rs 326 crore for Idea's cancelled licences in seven circles, leading to a net impact of Rs 1,640 crore."

Though clarity on the exact pricing is awaited, Religare estimates the net outflow for Bharti and Idea to be Rs 3,400 crore and Rs 1,700 crore, respectively, based on the auction base prices set by the Department of Telecommunications.

The payouts will also impact share prices of these companies. Analysts expect an impact of Rs 9/share for Bharti and Rs 5/share for Idea. These payments are expected to be paid upfront once the auctions are over. The payments will not be staggered for this.

The positive outcome of this event is merely the clarity this gives to investors on how much the payouts will be. The outlook for the sector remains negative, as "this will lead to higher spectrum-related payouts for the operators and note that the impact from the one-time fees is still likely to be much lower than the impact from licence renewal-related costs."

Spectrum re-farming remains a big challenge, as this will only add to the debt of the telecom companies.

Malini Bhupta in Mumbai
Source: