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India Telecom Sector ------------------------------------------------------------------------------------------
TRAI revised spectrum pricing proposals - more confusion?
● TRAI released revised recommendations on spectrum pricing, as
a follow up to similar proposals released in May-10.
● The document aims to address the key issues of renewal charges
and price of spectrum beyond 6.2MHz.
● The impact from new proposals, if implemented, are not different
from the May-10 proposals for Bharti and Idea at 13% and 48% of
fair value respectively. For RCOM, the impact would reduce from
31% to 16% (due to differential pricing of smaller spectrum
allocations).
● Further, by setting a benchmark for spectrum upto 6.2MHz, TRAI
has ensured that the process of allocating additional spectrum to
new entrants who currently have 4.4MHz will be mired in
controversy.
● We believe that regulatory newsflow over the next few months will
remain volatile for the sector, in the run up to budget session and
state elections. However, post these events we expect regulatory
noises to mellow down. With a longer term view, we still like Bharti
and Idea with OP ratings.
TRAI has released revised recommendations on two key issues: 1)
magnitude of one-time charge for 2G spectrum in excess of 6.2MHz
and 2) license renewal fee at end of 20 years. We recall that the May-
10 proposals had proposed a linkage of the above amounts to the
price discovered in 3G auctions. Today’s recommendations are based
on independent research conducted by a group of experts.
The new proposals value every MHz of spectrum beyond 6.2MHz at 2.6x
the value of spectrum below this limit. In addition, spectrum in B and C
category circles are priced at a premium to 3G, vs a discount in case of
metros and A circles. Further, in case the govt. cancels any licenses and
spectrum thus gets freed, TRAI recommends auction of such spectrum
and the prices hence discovered to supercede the proposed prices.
No change in impact on Bharti/Idea, lowers the impact on
RCOM
Based on our analysis, if the new rules are imposed there could be
13%,48% and 16% impact on fair values of Bharti, Idea and RCOM
respectively. While these numbers are not too different from the
earlier proposals for Bharti and Idea (13% and 53% respectively),
RCOM sees a reduction in the impact. This is because the company
has less than 6.2MHz GSM spectrum in most circles. These impacts
are not built into our fair value currently.
Creates confusion in the case of new licenses
While the latest recommendations give the spectrum prices only with the
objective of resolving the two issues stated earlier, the implications
could be felt elsewhere. By setting a benchmark rate for spectrum upto
6.2MHz, TRAI has ensured that the govt. will find it difficult to allocate
the incremental spectrum to new licensees who currently have 4.4MHz.
Any move from the govt. in this context will have to keep TRAI’s
proposals in mind, and could lead to risk of litigation from new entrants.
We expect newsflow on regulatory front to remain negative in the short
term as govt. faces various political challenges/events. This could keep
stock prices volatile. However, over the longer term, we expect the
improving fundamentals to drive outperformance of Bharti and Idea.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Telecom Sector ------------------------------------------------------------------------------------------
TRAI revised spectrum pricing proposals - more confusion?
● TRAI released revised recommendations on spectrum pricing, as
a follow up to similar proposals released in May-10.
● The document aims to address the key issues of renewal charges
and price of spectrum beyond 6.2MHz.
● The impact from new proposals, if implemented, are not different
from the May-10 proposals for Bharti and Idea at 13% and 48% of
fair value respectively. For RCOM, the impact would reduce from
31% to 16% (due to differential pricing of smaller spectrum
allocations).
● Further, by setting a benchmark for spectrum upto 6.2MHz, TRAI
has ensured that the process of allocating additional spectrum to
new entrants who currently have 4.4MHz will be mired in
controversy.
● We believe that regulatory newsflow over the next few months will
remain volatile for the sector, in the run up to budget session and
state elections. However, post these events we expect regulatory
noises to mellow down. With a longer term view, we still like Bharti
and Idea with OP ratings.
TRAI has released revised recommendations on two key issues: 1)
magnitude of one-time charge for 2G spectrum in excess of 6.2MHz
and 2) license renewal fee at end of 20 years. We recall that the May-
10 proposals had proposed a linkage of the above amounts to the
price discovered in 3G auctions. Today’s recommendations are based
on independent research conducted by a group of experts.
The new proposals value every MHz of spectrum beyond 6.2MHz at 2.6x
the value of spectrum below this limit. In addition, spectrum in B and C
category circles are priced at a premium to 3G, vs a discount in case of
metros and A circles. Further, in case the govt. cancels any licenses and
spectrum thus gets freed, TRAI recommends auction of such spectrum
and the prices hence discovered to supercede the proposed prices.
No change in impact on Bharti/Idea, lowers the impact on
RCOM
Based on our analysis, if the new rules are imposed there could be
13%,48% and 16% impact on fair values of Bharti, Idea and RCOM
respectively. While these numbers are not too different from the
earlier proposals for Bharti and Idea (13% and 53% respectively),
RCOM sees a reduction in the impact. This is because the company
has less than 6.2MHz GSM spectrum in most circles. These impacts
are not built into our fair value currently.
Creates confusion in the case of new licenses
While the latest recommendations give the spectrum prices only with the
objective of resolving the two issues stated earlier, the implications
could be felt elsewhere. By setting a benchmark rate for spectrum upto
6.2MHz, TRAI has ensured that the govt. will find it difficult to allocate
the incremental spectrum to new licensees who currently have 4.4MHz.
Any move from the govt. in this context will have to keep TRAI’s
proposals in mind, and could lead to risk of litigation from new entrants.
We expect newsflow on regulatory front to remain negative in the short
term as govt. faces various political challenges/events. This could keep
stock prices volatile. However, over the longer term, we expect the
improving fundamentals to drive outperformance of Bharti and Idea.
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