Small cellular firms see fall in valuation

 Analysts give four reasons why valuations will nosedive. First, the cellular service industry will be delicensed as a result of the unified licensing regime. So the premium paid by companies will disappear gradually.

 Second, the capital expenditure to build a network has fallen dramatically, so no one will be willing to pay for the high cost of the network today. For instance, the capital expenditure per subscriber has fallen from $150 to $175 two years ago to less than $100.

 The overall capital cost per subscriber is also on a crash course. For example, if for one lakh subscribers, a company spent $ 200 per subscriber as capex two years ago, he could simply double his network by another one lakh today, but at a lower capex of $100. So, effectively the overall capex per subscriber would be down to $150.

 Third, with pre-paid cards forming a good chunk of revenue(it constitutes 80 per cent of the subscriber base), smaller companies face the threat of losing customers to the big boys. That will again impact valuations adversely.

 Says Mehta: