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India: Telecom Services
Equity Research
Proposed NTP 2011: Negative for new entrants; Buy BRTI/Idea
NTP 2011 guidelines: Market-determined spectrum pricing
According to The Financial Express, India’s telecom minister outlined the
broad measures of the New Telecom Policy (NTP) 2011, which discusses
delinking license from spectrum, allocating spectrum on a market-linked
price mechanism, and charging a uniform fee for all licenses. The marketdetermined spectrum price could be arrived at through auctions or any
other mechanism suggested by the regulator, TRAI. The article also said
once NTP 2011 is in place, the concepts of start-up spectrum, additional
spectrum, and subscriber-linked criteria for allocating spectrum will cease
to exist. In addition, the minister said that if any of the 85 licenses granted
(which are currently investigated by the Supreme Court) by the former
telecom minister were cancelled, then the new licenses to be issued in lieu
of them would come under the new dispensation (i.e., the licensee would
have to pay an entry fee and market-determined price for spectrum).
Negative for new entrants; neutral to positive for incumbents
We consider the suggested amendments to be: 1) negative for new
entrants like DoCoMo, RCOM GSM, as they will likely pay marketdetermined prices for spectrum beyond 4.4 MHz (according to the old
policy, they were obligated spectrum up to 6.2 MHz); 2) the excess
spectrum payment (beyond 6.2 MHz) for operators like Bharti/Idea is
unlikely to be linked to 3G prices (as mentioned in TRAI May 2010 recos)
but at a market-determined price. We think this will be lower than 3G prices
given lower spectral efficiency for 2G. We expect additional spectrum
payments by new entrants will further weaken their balance sheets and,
therefore, would be positive for competitive dynamics in the market.
Other changes like uniform license fee also positive in long run
We believe other amendments such as uniform license fee for all licenses
is positive for the sector, as it will help reduce arbitrage opportunities like
shifting revenue payments from one license to another. This would also
benefit Bharti/Idea if license fees as a percent of revenues in Metros/Circle
A is reduced from the current 10% to a TRAI suggested figure such as 6%.
Excess spectrum payment for Bharti/Idea already in our estimates
We have factored in a Rs7.80/Rs3.20 per share negative impact due to
excess 2G spectrum payment by Bharti/Idea, assuming 2G spectrum is
priced at one-third of 3G spectrum price.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Telecom Services
Equity Research
Proposed NTP 2011: Negative for new entrants; Buy BRTI/Idea
NTP 2011 guidelines: Market-determined spectrum pricing
According to The Financial Express, India’s telecom minister outlined the
broad measures of the New Telecom Policy (NTP) 2011, which discusses
delinking license from spectrum, allocating spectrum on a market-linked
price mechanism, and charging a uniform fee for all licenses. The marketdetermined spectrum price could be arrived at through auctions or any
other mechanism suggested by the regulator, TRAI. The article also said
once NTP 2011 is in place, the concepts of start-up spectrum, additional
spectrum, and subscriber-linked criteria for allocating spectrum will cease
to exist. In addition, the minister said that if any of the 85 licenses granted
(which are currently investigated by the Supreme Court) by the former
telecom minister were cancelled, then the new licenses to be issued in lieu
of them would come under the new dispensation (i.e., the licensee would
have to pay an entry fee and market-determined price for spectrum).
Negative for new entrants; neutral to positive for incumbents
We consider the suggested amendments to be: 1) negative for new
entrants like DoCoMo, RCOM GSM, as they will likely pay marketdetermined prices for spectrum beyond 4.4 MHz (according to the old
policy, they were obligated spectrum up to 6.2 MHz); 2) the excess
spectrum payment (beyond 6.2 MHz) for operators like Bharti/Idea is
unlikely to be linked to 3G prices (as mentioned in TRAI May 2010 recos)
but at a market-determined price. We think this will be lower than 3G prices
given lower spectral efficiency for 2G. We expect additional spectrum
payments by new entrants will further weaken their balance sheets and,
therefore, would be positive for competitive dynamics in the market.
Other changes like uniform license fee also positive in long run
We believe other amendments such as uniform license fee for all licenses
is positive for the sector, as it will help reduce arbitrage opportunities like
shifting revenue payments from one license to another. This would also
benefit Bharti/Idea if license fees as a percent of revenues in Metros/Circle
A is reduced from the current 10% to a TRAI suggested figure such as 6%.
Excess spectrum payment for Bharti/Idea already in our estimates
We have factored in a Rs7.80/Rs3.20 per share negative impact due to
excess 2G spectrum payment by Bharti/Idea, assuming 2G spectrum is
priced at one-third of 3G spectrum price.
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