With concerns like moderating growth and regulatory overhangs still present, telecom stocks are moving up even on slightly positive news
Shares of telecom companies Ideal Cellular (Idea), Reliance Communications (RCom) and Bharti Airtel (Airtel) have been on the upmove for a while now. On Wednesday Idea and RCom hit their 52-week high in morning trade.
This follows clarity on “free national roaming” by the sector regulator, Telecom Regulatory Authority of India (TRAI). While telecom minister Kapil Sibal has been suggesting to make national roaming completely free, the reduction in these charges by TRAI gives different signal. Apparently, the TRAI wants to allow mobile operators to continue charging for national roaming albeit with reduction in
charges. More about it later.
There are also reports of the Arvind Mayaram Committee recommending increasing foreign direct investment (FDI) limit in telecom to 100% from current limit of 74%. According to a report in the Hindu Business Line, the Committee has also recommended allowing FDI in most sectors under the “automatic route”, thereby doing away with the need for government approval.
Though these are just recommendations and the decision either to accept the recommendations or not would be taken by Department of Industrial Policy and Promotion (DIPP). However, this would prove beneficial for most of the telecom players who are reeling under mounting losses and regulatory uncertainty.
RCom closed up 2.38% at Rs126.7 on the BSE after hitting a 52-week high of Rs130.10. At the same time, Idea ended the day 4.52% up at Rs147.90 after touching its 52-week high of Rs150.65. Bharti Airtel, on the other hand, closed 2.83% up at Rs299.70 while the benchmark Sensex ended the day marginally higher at 19,245.
After the auction for 3G and BWA, I wrote that as fallout of 3G auction, call-based tariff will give way to data-based tariffs
. I also suggested that after the 3G rollout, the possibility of massive increase in data-based services will give mobile operators an opportunity to create products and tariff plans with data-based services as the base product instead of voice-based services, thus unlocking new revenue segments.
However, not much has happened in past two years. Many mobile operators have launched 3G services, but either the tariff plans were not affordable for common mobile users or the data services lacked the required ‘punch’. The latter is true in most areas.
Earlier this year, Airtel, Vodafone and Idea increased rates for 2G by about 25% in order to reduce the gap between 2G and 3G data charges.
On Tuesday, Vodafone, the second largest mobile network operator in India after Airtel by subscriber base, reduced 2G data tariff by 80% in selected circles. Vodafone cut rates to 2 paisa per KB from 10 paisa per KB for its customers from Karnataka, Uttar Pradesh (west), Madhya Pradesh and Chhattisgarh circles.
As of March 2013, Vodafone has about 33 lakh subscribers, out of its 3.73 crore subscribers using its 3G services, while about 60 lakh out of 4.3 crore subscribers of Airtel were using these services. Both Vodafone and Airtel earned 7% and 6.5% of their total revenues from data services during FY13.
What is interesting is while the world is moving towards 4G services, telecom operators in India are still trying to make money out of 2G services. Two years after the Indian government auctioned 3G spectrum and broadband and wireless access (BWA), and after spending crores of rupees on it, telecom operators showed some spark in 2012. Last year in May, Airtel, the country's largest telecom operator, slashed its tariff for 3G services
by as much as 70% on select tariff plans.
However, Vodafone reducing data charges for 2G is not completely surprising. Vodafone does not have the licence to offer 3G services in the areas where it has reduced data tariff for 2G services. Earlier, Vodafone, Airtel and Idea tried to circumvent the 3G auction by collaborating and sharing 3G services with each other in circles where any one company does not have licence for the same. The case is sub-judice at present.
Impact of national roaming rate cut would be limited
Bringing more clarity on national roaming, the TRAI on Monday, reduced ceilings for calls and SMS made while roaming across the country. The regulator also provided flexibility to telecom operators to customise tariffs for national roamers through special tariff vouchers (STVs) and combo vouchers.
In 2007, TRAI had prescribed ceiling tariffs at Rs1.40 per minute for outgoing calls and Rs2.40 per minute for outgoing STD calls while on national roaming. These ceilings have been reduced to Re1 per minute and Rs1.5 per minute, respectively. The ceiling tariff for incoming calls on national roaming is reduced to Rs0.75 per minute from Rs1.75 per minute. Local SMS and SMS-STD are capped at Re1 per message and Rs1.5 per message. Incoming SMS would continue to remain free of any charge.
According to brokerages, in the context of prevalent concerns regarding “free-roaming”, the TRAI order on reducing call and SMS charges on national roaming is positive for the industry and provides flexibility to subscribers as well as operators. However, it would have miniscule impact on the bottom-lines of telecom operators.
“Assuming a domestic roaming contribution of around 4% and of that about 50% from incoming, incoming domestic roaming revenue contribution is estimated at 2%. A 25% decline in the tariff for this leg would result in a wireless revenue impact of 0.5% and wireless EBITDA impact of 1.3%," said a brokerage in a research note.
According to Religare Capital Markets, Vodafone, Airtel and Idea have seen traffic growth during the March quarter amidst range-bound realisations. "In our view, subscriber penetration is nearing saturation and sustainability of core voice growth remains a question. Further, we note that year-on-year growth is started trending into single digits. We remain cautious on the sector given our view on moderating growth and high expectations," it said in a research report.