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UBS Investment Research
India Mobile Sector
2G spectrum scam implications
Telecom minister's departure could resolve regulatory issues
We believe that the 2G spectrum scam related news flow (from the CAG report
that is in public domain) and the resignation of the former telecom minister A Raja
could result in speedy resolution of the outstanding regulatory issues in the Indian
mobile sector such as 1) one-time payment of spectrum fees 2) M&A policy that
will aid consolidation 3) Future of new entrants who have got spectrum but have
not rolled out services
CAG report provides insights into what went wrong
CAG report has raised concerns on DoT allocation of spectrum on the following
counts 1) DoT ignored the advice of key ministries and Prime Minister on using
the auction based model for determining the price of the 2G spectrum 2) DoT was
inconsistent in applying the TRAI recommendations on new 2G licence issuance 3)
DoT arbitrarily changed the cut-off date and its license issuance process to benefit
certain players 4) Many new companies misrepresented facts leading to 85 out of
122 new licences being issued to ineligible companies.
We believe that the new licenses are unlikely to be cancelled as DoT has issued
them. However operators such as Etisalat, Loop Mobile, and Videocon who have
got spectrum but have not rolled out services are at risk of losing their spectrum.
This spectrum could be allocated to incumbent operators such as Bharti, Vodafone,
Idea, RCom & Tata DoCoMo. We expect most of the regulatory issues to get
resolved in the next 6-9 months which is incrementally positive for the sector. We
reiterate our Buy ratings on Bharti & RCom and Sell rating on Idea.
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