Telecom woes unlikely to ease with TDSAT verdict

Market concerned over impact on forex loans and regulatory environment

After falling 11 per cent over the past six months, shares of Bharti Airtel gained over three per cent on news that the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) had given a split verdict on inter-circle 3G roaming arrangements between Bharti, Idea and Vodafone. The telecom companies had challenged the government order, requiring them to discontinue offering 3G services in circles where the players did not have 3G licenses.

Bharti’s shares may have moved up, but analysts say this is unlikely to change the view on the sector. So far, 3G’s share in revenues remains insignificant. Analysts claim the industry has 20 million 3G customers, of which 30 per cent are active. According to ICICI Securities, “Bharti currently has eighty lakh 3G subscribers, estimated to be the highest in the industry. Assuming that 30 per cent of them are active with an additional average revenue per user of Rs 200, 3G services would contribute Rs 576 crore, just 0.8 per cent of the FY12 revenue for Bharti.” Most analysts, therefore, believe the outcome of inter-circle roaming would not have any positive bearing on the financials of companies in the near term. Over and above the revenue impact, analysts say if spectrum is liberalised over time, then operators will be able to offer services similar to 3G using 2G spectrum.

The sector faces greater risk from the falling rupee and the consequent increase in debt-servicing costs. Though analysts estimate Bharti and Idea to clock revenue growth of 2.7 per cent and 3.2 per cent in Q1, respectively, led by decent volume and stable realisation, the depreciating currency would wreak havoc. Brics Securities says the 9.36 per cent fall in the rupee during Q1 is a key headwind for the sector. It expects substantial forex losses for Bharti and Idea, leading to 11.2 per cent and 23.6 per cent increase in finance costs. However, Bharti’s net profit is expected to be higher, due to normalised tax rate of 31 per cent compared to 41 per cent in Q4FY12. The market is more concerned over spectrum refarming, higher base price for the same and currency weakness, all of which would result in higher payouts. Analysts say if one considers Trai’s recommended prices, Idea would have to shell out Rs 2,300 crore to acquire spectrum in circles where its licenses have been cancelled. Unfavourable regulatory environment and currency depreciation would further stretch balance sheets of key players.