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Telecom stocks take a hit, cut losses later

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A day after the telecom regulator proposed , the shares of leading telecom operators tumbled in early trade. The losses were later cut on expectations the proposals might not be accepted. Shares of the largest telecom operator, , in morning trade fell as much as 7.6 per cent to Rs 289, its lowest level in nearly two years. The fourth-largest player, , plunged as much as 14.5 per cent, while , the second largest, declined as much as 3.4 per cent.

The Telecom Regulatory Authority of India () had proposed a near-tenfold increase in the reserve price for spectrum over what operators had paid in 2008.

Analysts said the recommendation would push up costs and hurt companies’ profitability. The telecom companies and their industry body slammed the move, saying it would kill the industry.

“These recommendations will pose challenges and hurt earnings but the final impact will depend on a number of variables,” said , head of research, . , however, managed to cut losses after the sentiment improved slightly on hope the recommendations would not be implemented.

Trai’s proposals are not binding and the government will decide on the final spectrum rules.

“The recommendations are adverse for the entire telecom industry as well as for consumers. This is the third sensational set of recommendations by the Trai — the earlier ones being in May 2010 and February 2011,” said and , telecom analysts at MF Global, in a note. “The previous recommendations are yet to be implemented and in our view, the current set of recommendations seem too far-fetched to be implemented,” the duo added.

“We find little logic in spectrum being priced so high. We don’t expect broad-based participation in the upcoming auctions if this pricing happens to be final. We believe the government will have to significantly revisit the pricing recommendations,” said HSBC analyst in a report. Bharti Airtel shares finally ended two per cent lower at Rs 306. Idea Cellular closed 3.72 per cent down at Rs 80, while RComm ended at Rs 80, down 1.35 per cent. Telecom analysts expect the stocks to remain range-bound for some time.

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