Telecom auctions: Idea, Bharti retain spectrum

Threat from Reliance Jio didn't materialise; Idea Cellular and Bharti Airtel retain spectrum

Even as the broader markets saw a sell-off, top-listed telecom stocks Bharti Airtel and Idea Cellular gained one-four per cent. The Street believes with the auctions over, favourable competitive landscape led to the upward share-price movement. Market experts say the structure of the telecom landscape hasn’t changed much as Reliance Jio (RJio) did not end up winning a lot of key spectrum.

While the exact allocation and bids won is not known, analysts say RJio did not win any spectrum in the 900 MHz band nor did it make a dent in the 800 MHz band in Delhi, Mumbai and Andhra Pradesh circles. RJio won 48.75 MHz in the 800 MHz band. Market experts doubt whether the firm would be able to compete, with the top three telcos on the data side. The fear of RJio playing spoilsport in the auctions has not materialised as of now. This could translate to higher rates.

J M Financial analysts say there is greater likelihood of tariff hikes in FY16 in mobile voice and data. The estimated final costs for telecom operators were marginally higher than the estimates over the first 10 days of the auctions, which saw severe bidding for the 900 MHz. While it was estimated Idea would spend Rs 22,000 crore (74 per cent higher than the reserve price for 5 MHz of the 900 MHz band), estimates after the final day of auctions put the number at Rs 23,068 crore. For the entire spectrum, the cost is pegged at Rs 30,573 crore against Rs 29,000 crore estimated during the initial days of auction. Among listed entities, Idea Cellular was most at risk given the pressure to hold on to key spectrum in circles (70 per cent of revenues) where its licences were coming up for renewal.

If Idea is to recover Rs 30,000 crore investments, it will need to recoup it in the next seven-to-eight years (Rs 4,000 crore a year). It will have to increase its fare by five paise from the current 35 paise a minute. However, analysts say only a part payment is needed now (25-33 per cent) and there are other ways to recover the costs, which include data growth which currently accounts for 15.7 per cent of revenues.

Most analysts continue to have ‘buy’ on both stocks.