How brokerages are reading SC's 2G verdict

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How brokerages are reading SC's 2G verdict

The Supreme Court order cancelling 122 licenses may have been a body blow for telecom companies, but brokerages say it is not all bad news, reports CNBC-TV18's Sajeet Manghat and Archana Shukla.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

The Supreme Court order cancelling 122 licenses may have been a body blow for telecom companies, but brokerages say it is not all bad news , reports CNBC-TV18's Sajeet Manghat and Archana Shukla.

Eleven telecom operators have taken a kick to the gut as the Supreme Court's order will mean de-congestion in the telecom market. But, brokerages say this judgement will mould the fortunes of different telecom players in different ways, with incumbent players getting an advantage.

Nine of Idea 's licenses have been cancelled and including the licenses with Spice Telecom, this number goes to 13. But brokerages say, Idea may not take too much of a hit, since close to 90% of its revenues come from the 13 circles it bagged before 2008. They say, Idea will have to go in for auction-based market price for spectrum in the nine circles where licenses have been cancelled.

But for Uninor, the going could get tough, as all 22 of its licenses stand cancelled. Not only will promoter Unitech not get back the Rs 1,600 crore already paid for licenses, it will have to pump in more money for new licenses.

Also, there is a possibility that Unitech's foreign telecom joint venture partner Telenor will shift this liability of higher license cost, or cancellation and business exit charges, on Unitech.

Videocon, Loop and Sistema have lost 21 licenses each. Tata Tele has lost three licenses, S Tel has lost six licenses and Etisalat DB has lost 13 licenses. These companies have not only lost the money already paid for spectrum, but their entire telecom business is hanging by a thread.

But incumbent players like Bharti Airtel , Vodafone, Aircel, and Anil Ambani's Reliance Communication have escaped unscathed. Brokerages point out that these companies received GSM licenses before 2008. Also, these companies are most likely to benefit from the spectrum consolidation that this judgment is likely to give rise to.

However, the impact of this order on dual technology operators like Reliance Communications and Tata Tele is uncertain. Dual-technology licenses are not covered under this verdict. Analysts say, these two firms may be hit if the judgement implications are logically extended to them. The Supreme Court is yet to decide on this aspect.

The affected companies are likely to file review and curative petitions before the Apex court. However, brokerages also point out that except for Uninor which has 37 million customers, all other affected operators are marginal players and most of their subscriber base is confined to pre-paid users.

Incumbent players like Airtel, RCom, and Vodafone will benefit from customers, who might choose to change connections. Brokerages also expect Telenor, Sistema and Idea to bid for fresh spectrum to keep their businesses alive.

But the future strategy of Loop/Essar, Videocon and Swan/Etisalat remains uncertain. An exit by these companies may lead to the availability of two-three spectrum slots per circle. This surplus spectrum should get absorbed by demand from RCom, Bharti and Vodafone, who have strong balance sheets and cash flows.

Brokerages further expect fresh spectrum auctions to lead to higher costs for these companies and this extra cost could lead to higher tariffs. Also, spectrum renewal costs will become less volatile, and companies may have to bear a lower burden on account of one-time-fee payable to the government for spectrum above 6.2 MHz.

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