Telcos sweat under spectrum deadlock

Collective m-cap declines by Rs 33,000 crore as investors turn edgy.

The valuation of telecom entities has taken a beating due to the ongoing spectrum impasse. Over the last 15 days (October 18 to November 8), the total market capitalisation of all the major listed telecom operators slid by Rs 32,570.99 crore "" a fall of 8.15 per cent, according to data available on the Bombay Stock Exchange.

The spectrum tangle has also resulted in the fall of telecom share prices as investor confidence was eroded after the Department of Telecommunications (DoT) decided to permit CDMA (Code division multiple access) players operate GSM (Global System for Mobile communications) services in their existing circles.

On October 19, DoT permitted three companies - Reliance Communications (RCom), Himachal Futuristic Communications and Shyam Telelink - to offer dual technology (GSM and CDMA) in their existing circles. The issue, however, is being contested with GSM operators placing the issue before the Telecom Disputes Settlement and Appelate Tribunal (TDSAT).

The market cap of Bharti Airtel, the country's leading telecom player, fell to Rs 1,67,823.98 crore from Rs 1,93,452.6 crore, while that of RCom was nearly flat at Rs 1,44,462.21 crore (from Rs 1,45,804.56 crore) during the 15-day period. The case was similar with Idea Cellular, MTNL, Spice Communications and Tata Teleservices, Maharashtra (TTML).

Naresh Singh, an analyst with Gartner, agrees that the spectrum issue is having huge ramifications. "This is affecting the quality of services in the country. Without spectrum, the telecom growth story will not be sustainable as the country is still using second-generation technology. To move ahead to newer technologies like 3G, the industry needs to be allocated radio frequencies. As India is looking to compete with China, better infrastructure and regulations are needed soon."

Moreover, lack of spectrum would affect expansion and rollout plans which, in turn, will affect the profitability of these companies.

A rosy picture of the sector is not exactly being projected to investors, particularly private funds and foreign investors. This is reflecting in the market, he added.

Sumit Modi, an analyst with Emkay Shares and Stock Brokers, says: "Valuations have taken a hit as investors fear that the lack of spectrum will result in the companies being forced into additional capital expenditure for maintaining the quality of services."

"Despite the government not allocating spectrum for the last two years, companies have maintained and accelerated growth thanks to declining tariffs and sliding handset prices. The lack of spectrum would only affect capex and won't impair growth," Modi said.