Higher spectrum cost drags telecom players

Written by fe Bureau | Mumbai | Updated: Jan 28 2014, 05:34am hrs
Telecom stocks fell after the empowered group of ministers (EGoM) approved spectrum usage charge (SUC) of 5% ahead of the February 3 auctions.

Analysts feel the move would impact telecom shares in the near term as the quantum of SUC is higher than the 3% recommended by the Telecom Regulatory Authority of India (Trai).

The Idea Cellular stock lost 4.72% to close at R145.30. Bharti Airtel was down 1.99% to end

at R307.05. Reliance Communications dropped 5.07% to close at R122.60.

On Monday, the EGoM decided that existing telecom operators will have to pay the weighted average of their existing SUC, and 5% if they acquire new spectrum. The SUC for broadband wireless access (BWA) spectrum will remain at 1% as the government has not amended the existing contractual obligation. SUC is levied annually by the government as a percentage of revenue earned from telecom services.

The decision is a positive one, as operators can buy more spectrum at lower SUC (SUC currently ranges from 3-8% for mobile operators). However, investors would perceive this as a negative as Trai had recommended a lower SUC of 3%, said an analyst with a leading brokerage, on conditions of anonymity.

There is likely to be a slight positive impact on FY15E EPS for Bharti Airtel (2.6%) and Idea Cellular (1.4%) owing to the reduction in SUC for incremental spectrum purchased, a domestic brokerage said in a report.

Earlier, telecom scrips had fell when Reliance Jio decided to participate in the February auction. The auction would be offering spectrum in two separate frequency bands 900 MHz and 1,800 MHz. The government expects to raise R11,300 crore to curb fiscal deficit.

Experts feel huge debt on the sector remains a key worry for telecom stocks. RCom and Bharti Airtel have high debt sitting on their balance sheets, said Alex Mathews, head (research), Geojit BNP Paribas Financial Services.