FE Editorial : Signal gets stronger

A 40-50% hike in prices of Bharti and Idea stocks since the end of August seems a bit much given the large regulatory overhang the telecom industry is burdened with. Bharti Airtel, for instance, needs to pay around R5,000 crore as a one-time charge for the ‘extra’ spectrum it holds. There is then the cost of renewal of licenses at the dramatically higher entry charges as well as the cost of refarming of the 900 MHz spectrum. All told, according to a Kotak Institutional Equities analysis, the negative NPV impact of all of this would have been R138 on a Bharti Airtel share—R83 on each Idea share—in a partial refarming case. Having done the exercise, Kotak analysts assumed telcos would have no option but to hike prices to deal with the higher costs—a 40% tariff hike was assumed over a period of time and this lowered the final regulatory overhang to R15 per Bharti and Idea share. Well, over the past week, Bharti (and Idea to a lesser extent) has been chipping away at the large discounts given to consumers. While Bharti’s headline tariff is around 90 paise a minute, thanks to large discounts, the realised tariff is roughly half this. With the reduction in discounts, effective tariffs for Bharti Airtel are up around 10-12% and, going by Vodafone’s press release on Wednesday, it is also likely to follow suit. Which is why Macquarie Equities Research’s note on telecom, released the day before the

... contd.