RCom narrows m-cap gap with Bharti Airtel

With govt allowing former to uses GSM as well can propel it to No 1 slot

MUMBAI: Closing in on its arch rival in the telecom space, Reliance Communications (RCom) on Friday halved the gap to Rs 8,794 crore with Bharti Airtel in market capitalisation.

This week may see a new leader emerge in the telecom space, though many would argue rightly that leadership should be measured only from market share in telecom, and not the share market.

When the stock exchanges closed on Friday, both telecom shares ended up losers. But the gap got smaller. Sunil Mittal’s Bharti Airtel lost 5.10% and Anil Ambani’s flagship company shed a marginal 0.63% of its shareholder value. Bharti has more subscribers than RCom.

On Thursday, the difference between the two telecom service providers was as much as Rs 16,907 crore in favour of Bharti Airtel.

Thus the battle fought so far in the telecom circles and in the corridors of the regulator’s offices has investors rooting for RCom as they perceive Anil Ambani’s group to leading the rounds.

That is, if investor’s perception is a true indicator.

In recent days, brokerage houses have given bullish calls on RCom even as Sunil Mittal and his flagship company made public their disapproval of how the telecom regulator has purportedly made a wrong decision favouring their rival technology.

When Reliance Communications was listed on the premier bourses in mid-September 2006, the difference between the two was as high as Rs 40,955.4 crore. The gap became wider as it touched Rs 68,568 crore, the largest chasm between the two on April 24, 2007.

Analysts say the latest kicker for RCom is the government approval to allow it to diversify its telecom technology to include GSM along with its CDMA technology.

CDMA technology is supposedly spectrum-efficient even though subscriber acquisition is costlier. Spectrum or airwaves are the main raw material for telecom companies.

GSM telephony players, including Bharti Airtel, have been crying hoarse for some months now for additional allocation of spectrum, which inhibits their growth and quality of services now.

Sunil Bharti Mittal is leading the battle, having already made his stand clear. There is a perception that RCom was favoured by the new Trai dictum of allowing one company to have two technologies.

But to be fair to Anil Ambani, he has been on the overdrive ever since the telecom company fell into his lap. He wrote off a sizeable amount of bad debt and restructured the telecom portfolio by sweeping all the allied businesses into Reliance Communications. He called it transparency but it also improved valuations.

He appeared aggressive to acquire Hutchison Whampoa’s stake in Hutch Essar when Li Ka-Shing, the Hong Kong billionaire, put his stake on the block. It improved RCom’s valuations though he preferred to withdraw from the race after he put in a low bid for the GSM company.

Anil Ambani was also the first mover in many other counts. He was the first player to hive off the tower business and on the anvil is a plan to make DAKC, the RCom headquarters into an SEZ. Another plan is to list Flag Telecom, the international long- distance telephony company, in Singapore. Thus, he is on an overdrive, building shareholder value.

On the other hand, Sunil Mittal may have shifted his sights a wee bit from telecom in the past, as he put efforts to cobble a retail and insurance plan. This may change now.

All this has heightened investor appetite. The move to hive off the telecom tower business sparked off a stampede with other telecom players including Bharti, Tata Tele, Vodafone Essar and Idea announcing similar plans.

Anil Ambani’s GSM telephony game also gave the Tatas the idea to apply for the same license.

But nobody will bet Sunil Bharti Mittal to sit tight. He is equally adept at influencing decisions he has already made. The telecom battle, which spread into the rural hinterland and the regulator’s corridors, meanwhile, is getting reflected in stock valuations.