The verdict may have shocked India Inc, but the Supreme Court order to scrap 122 licences is being viewed by analysts as a boon for a telecom sector grappling with mounting losses.
Naval Seth, analyst with Emkay, in a note said fresh spectrum auctioning will flush out non-serious players leading to consolidation and tighter operational discipline in the industry.
“Operators such as DB Etisalat, STel, Loop and Videocon would not participate in the auction in our view, given the hyper-competitive scenario,” Seth said.
Vinay Jaising and Vanessa A D’Souza, analysts with Morgan Stanley, said two uncertainties —consolidation and spectrum-related payouts —plaguing the industry have been taken care of by the court order.
“This will help promote consolidation … only a few operators are likely to participate in an expected auction, which will lower the number of players in the industry,” they wrote in a note.
Ankita Somani, analyst with Angel Broking, believes the recent developments could cause near-term pain for some players, but would be positive in the long run for the industry.
“For the past 2-3 years, operators have been bleeding due to 3G, and their profitability has also gone down. After the auctions, we expect the total number of operators to reduce from 14 to 9 or 10, as not everyone will bid. Thus, there will be more pricing power, bringing about stability in pricing, and competitiveness will decrease,” she said.
Somani expects tariffs to shoot up 20% in three months.
But Ashish Basil, telecom partner with member firm of Ernst & Young, expects the tariff jump to happen gradually. “We expect a 20-30% hike in the next year,” he said.
In a note to investors on Thursday, analysts at Edelweiss Securities said there could be withdrawal of aggressive promotional offers and freebies by Idea and Uninor, which will improve their average revenue per user.
“We also expect subscriber acquisition cost to shrink due to a reduction in distributor margins as the chase for marginal customers reduces. With the cancellation of licences, excess supply of spectrum would lead to cheaper prices. Overall, we expect margins, cash flows and return on capital employed to improve in the industry,” they said.
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