New Telecom Policy: Long on intention, short on detail: Standard Chartered Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


 The draft NTP ’11 has referred the issue of licensing framework, exit policy and
spectrum pricing (for excess spectrum/renewal) back to the TRAI. The policy would be
finalised by end-Dec ’11 after factoring in feedback to the draft.
 Abolition of domestic roaming over time – revenue contribution (3-4%) could halve,
impacting consolidated EBITDA by 2%/4.5% for Bharti/Idea.
 Spectrum Act to “encourage” re-farming; likely to include all bands (incl. 900 MHz) to
provide for Broadband Wireless Access (BWA) but modalities unclear. Overall, the
government aims to make available 300 MHz by 2017 and an additional 200 MHz by
2020 incl.1800-1900 MHz.
 Proposed rationalisation of taxes, M&A rule relaxation and spectrum sharing/trading are
+ves but no specific details.
 Future spectrum allocation at market rates could impact new entrants stuck at 4.4 MHz.
 Maintain Outperform on Bharti/Idea.
 Licensing/pricing referred back to TRAI. The NTP seeks TRAI recommendations for a new
licensing framework, migration of existing licensees to the new framework, an exit policy, etc,
while detaching licensing and spectrum allotment. It aims for all future allocations at market
rates, which could be negative for new entrants who have only 4.4 MHz currently. The policy
is, however, silent on excess spectrum and renewal fees for GSM incumbents, which could be
relooked at by the TRAI and incorporated in the new proposed Spectrum Act.
 Estimate EBITDA impact of 2-5% on abolition of roaming. The NTP envisages working
towards a One-Nation Free roaming framework and aims to work towards the ultimate
objective of removing roaming charges across the nation. We estimate EBITDA impact of ~2%
for Bharti and 4-5% for Idea on abolition of domestic roaming. The present domestic roaming
revenue (3-4% of mobile rev) could halve as incoming calls become free and outgoing call
rates are reduced while roaming.
 Spectrum Act largely positive but refarming remains an overhang. NTP-11 aims to enact
a Spectrum Act that will deal with issues connected with spectrum licenses, re-farming/
withdrawal of allotted spectrum, spectrum pricing, cancellation or revocation of spectrum
licence, exemptions on use of spectrum, spectrum sharing, spectrum trading, etc. While
spectrum refarming is complicated and remains an overhang, the policy is likely to be
comprehensive and include all spectrum bands, ie, 700 MHz, 900 MHz, etc, to make available
for BWA. The government plans to make available adequate globally harmonised spectrum in
the bands of 450 MHz, 700 MHz


 Rationalization of taxes is one of the aims. Recognising telecom as infrastructure,
rationalization of taxes, spectrum trading and creation of a SPV Telecom Finance Corporation
will help ease the funding requirements for the sector and facilitate investment in the sector.
Though specific details will evolve, this allays some of the pessimism in the market regarding
the government’s willingness to reduce the revenue share/spectrum fees (@14% of AGR) in
return for the higher one-time charges for excess spectrum/renewal. The relaxation in M&A
rules and allowing spectrum sharing/trading is a step in the right direction and inevitable in our
view. The lack of details and granularity on the same, however, is disappointing.