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Sibal's notice boosts stock price of existing operators

A day after the Union telecom minister issued show-cause notices to 85 companies that received 2G licenses, the share price of old telecom operators jumped sharply. Sandeep Singh reports.

business Updated: Nov 30, 2010 21:17 IST
Sandeep Singh

A day after the Union telecom minister issued show-cause notices to 85 companies that received 2G licenses, the share price of old telecom operators jumped sharply.

Market experts said the price movement was in line with expectations that lower competition in the telecom industry would result in better growth for the existing operators.

The share price of Bharti Airtel rose 6.5% on Tuesday and the shares of Idea and MTNL rose by 4.1% and 3.8% respectively. Reliance Communications too saw a 3.4% gain in its share price. This, on a day when the Bombay Stock Exchange's premier index, the 30-share Sensex, rose a mere 0.6%.

"The market feels that the competition from new players will get diluted as the new players have been issued show cause notices and there is a possibility of their licenses getting cancelled," said Gaurav Dua, head of research at Sharekhan Securities.

Experts in the industry feel that the older players are on a strong foot as there is no problem with their licenses.

"There is a comparative advantage to the older players," said Romal Shetty, head of telecom practice at KPMG. "The new players that have rolled out their services may suffer penalties which may impact them."

Over the past couple of years the telecom industry has been under lot of pressure because of the growing competition from new players that led to a fall in their margins.

"Once the competition reduces the older players will gain," said Dua.

While the market reaction was sharp, experts say things are still not stable and investors need to bide their time and look into how things shape up going forward.