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Bharti: Pricing freedom to return

Malini Bhupta / Mumbai Feb 04, 2012, 00:47

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It’s apparent that the Supreme Court’s ruling on cancellation of 2G licences issued from 2008 will bring some sanity to the industry. But shares of the country’s largest provider of mobile telephony services, Bharti Airtel, haven’t rallied 7.3 per cent in two days only because excess competition will be weeded out. That’s the obvious outcome. Analysts expect Bharti to weed out free minutes from the system in the current quarter itself. So, those customers who so far have been paying a measly Rs 200 for 500 minutes will have to cough up more. Once these low-cost minutes are gone, operators like Bharti will start raising rates.

The market is not excited about this alone. What analysts are excited about is 444 MHz of GSM spectrum that will be freed as a result of the cancellation. This spectrum, which is going to be auctioned, will not find as many takers, especially at very high prices. Amit Ahire, telecom analyst at Karvy Institutional Research, believes most new entrants, except Uninor, are not in a position to participate in the auction, which will lead to a situation where the supply of spectrum would exceed the demand, resulting in limited upside from the base price. Based on the Telecom Regulatory Authority of India (Trai)-recommended spectrum pricing, Bharti is expected to pay Rs 4,200 crore for the excess spectrum it holds and Rs 4,700 crore for the renewal of licences in nine circles for a 10-year period in FY15-16. The auction price for this 2G spectrum will become a benchmark of sorts believe analysts, which will bring down regulatory levies on players like Bharti Airtel.

Vinay Jaising and Vanessa D’Souza of Morgan Stanley also believe the reserve price in an auction would be the original 2G price of Rs 1,680 crore, almost one-tenth the price paid for 3G. “As a final bidding price would be used as a base for calculation, the excess spectrum charges and spectrum renewal payments could be much lower than Trai’s recommendations,” they say in their report.