Telcos euphoria short-lived on lack of clarity

A one-time outgo at a time when the sector is reeling under competitive pressure, high debt and various issues of governance has not gone down well with the market

Telecom stocks shot up late on Monday on news that the Empowered Group of Ministers (EGoM) has decided that all operators will pay for excess spectrum beyond 4.4 MHz on a prospective basis. Market expectation was that the payment will be backdated. However, the euphoria was shortlived. Telecom stocks have fallen on Tuesday with Bharti Airtel trading 1.8 per cent lower; Idea is down 3.18 per cent while Reliance Communication is down 1.82 per cent.

Though details of the outcome of the meeting have not been made public, one-time outgo at a time when the sector is reeling under competitive pressure, high debt and various issues of governance has not gone down well with the market. Bharti Airtel is expected to take a hit of Rs 3,800 crore or Rs 10 per share while Idea Cellular will have to shell out Rs 1,800 crore or Rs 6 per share. There is no clarity yet on the impact on CDMA players, though sector experts say that even they will be made to pay a one-time fee as well as for their spectrum holding above 2.5 MHz.

Though the payment outgo is negative and these are slightly on the higher side, there are certain positives to the proposal, provided it is approved.

For one this decision clears a regulatory hurdle. A logical complaint of the sector is that there is no clarity on government regulations, which has put the brakes on further planning. This decision is likely to clear a big hurdle as the industry was unsure whether the charges will be levied beyond 4.4 MHz or 6.2 MHz. Even the time period for which the companies will have to pay-out was not clear. Assumptions ran from entire license period to post 2008 or prospectively.

Secondly, if CDMA players are also charged, which is expected by market observers, there will be some amount of level playing field between the two set of players.

While there are still a number of issues that need clarity which can come only after the cabinet clears the EGoM proposals, the fact that there has been some progress with regard to regulations are a good sign. But are these proposals in line with what the players are expecting or will it be subject to further litigation is something that can only be clear after the details are made public. Till such time telecom stocks are unlikely to go anywhere in a hurry.