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Sparring telcos hurt their own stock values

The prolonged tussle for spectrum between GSM and CDMA operators has started eroding the valuation of telecom service providers in the stock market, reports Archana Khatri.

india Updated: Dec 25, 2007 20:34 IST
Archana Khatri

You could call it collateral damage in the war for spectrum.

The prolonged tussle for spectrum between GSM and CDMA operators has started eroding the valuation of telecom service providers in the stock market.

The valuations of the share price of the telecom players listed in the Indian stock market -- Bharti Airtel, Idea Cellular and Reliance Communications have been affected by a lack of clarity in the way allocation of spectrum for future growth will happen.

“Even though telecom operators have added 40 million subscribers in the last 6 months, their valuations have come down. The share prices of Reliance Communications, Bharti and Idea Cellular have been stagnant over the last six months” observes Prashant Singhal of accounting and consulting firm Ernst &Young.

Since October the stock price of Bharti Airtel has in fact fallen 13 percent, and the share price of Idea Cellular has fallen 12 per cent. Even the share price of the CDMA operator Reliance Communications, on which the stock market pundits have been bullish about, has fallen 3 per cent since October.

The falling valuations, though may not signal any fall in the profitability of the company – though that show the market’s fears about future sustainability of profits and market-share.

“In the short term, markets would typically over- react on any pressure on the margins. The impact on valuations is much more visible than on the actual profit,” said telecom analyst and consultant Mahesh Uppal.

But longer the period for which the operators remain locked in the war for spectrum, greater the valuation will be affected negatively.

Some say foreign investors could turn skeptical as the war drags on.

To reach the target of 500 million mobile phone subscribers, the sector needs an investment of $60 per subscriber, i.e. about $15 billion.

Russia’s Sistema, US telecom giant AT&T and Verizon Communiocations and Singapore based SingTel, are among the major players other than a horde of private equity firms that have been bullish about Indian telecom market.