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India – Telecom (Minister begins clean-up act; we upgrade Bharti): Telecom minister Kapil Sibal issued a clear statement yesterday that the government will:
1) cancel the licences of new telcos who were ineligible at the time of licence application in 2008:
2) include revenue-share payments for spectrum in the calculation of “payments for spectrum” and not only upfront payments; and
3) evolve a policy framework in the next few weeks.
With this, the stage is set for a comprehensive improvement in the regulatory environment, especially relating to transparency and licence payout risk, and potentially some reduction in competitive intensity through cancellations of licences. We view these developments as positive for Bharti and Idea. We upgrade Bharti to BUY with a target price of Rs399. In the case of Idea, valuations deter us from becoming positive, though it may happen that the new telecom policy includes progressive M&A changes and leads to an upside.
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