Marginal impact of Trai's decisions

Key trigger for telecom stocks will be the extent of bidding in the coming auctions

For major telecom operators, the Telecom Regulatory Authority of India (Trai)’s decision to cut interconnection usage charges (IUC) by 30 per cent to 14 paise a minute and reduce carrier charges for domestic long-distance calls by 46 per cent to 35 paise a minute are negatives. Analysts at IDFC Institutional Securities estimate the IUC move will impact the wireless business operating profits of operators such as Bharti Airtel and Idea Cellular by 1.5-2 per cent. The larger players will be hit the most, given a greater proportion of incoming calls (about 51 per cent) originate from competing networks.

The six paise reduction in IUC will lead to earnings before interest, tax, depreciation and amortisation impacts of about Rs 259 crore and Rs 162 crore for Bharti Airtel and Idea Cellular, respectively, say analysts. However, part of the revenue loss will be offset by a 13 paise increase in the termination rates for international calls (53 paise a minute). The move will help smaller wireless operators and landline companies, as the regulator has done away with IUC for calls to and from landlines.

Morgan Stanley analysts say the key gainers are new operators and smaller players such as RJio, Telewings, Systema and Aircel, as their termination network costs could fall 30 per cent for calls outside their networks.

The zero termination charges for wire-line networks are aimed at promoting adoption and investment in landline networks as vehicles of internet access and increased voice usage. While BSNL and MTNL will be the key beneficiaries, its impact on the overall sector could be low, given landline connections are less than 30 million, while wireless subscribers are approaching the billion mark. The regulator’s step to reduce carrier charges for domestic long-distance calls will not have much of an impact.

In the past few days, the stocks of leading listed telecom operators closed with losses. Analysts at Goldman Sachs say given the expiry of licences through the next two years, Idea Cellular and Reliance Communications face the highest risk. For Idea, nine circles (accounting for 72 per cent of its revenue) will be up for renewal, while for Reliance Communications, seven circles (a third of its revenue) will be at risk. The research firm says Bharti Airtel will be impacted the least by the coming auctions, as it has adequate back-up spectrum in the six circles where its licences will be due for renewal.