Higher spectrum cost drags telecom players

Jan 28 2014, 00:04 IST
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SummaryTelecom stocks fell after the empowered group of ministers (EGoM) approved spectrum usage charge...

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.

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