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TRAI demands justification for increase in tariffs by Telecom

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Published: Friday, August 26, 2011, 10:24 [IST]
 
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TRAI demands justification for increase in tariffs

The telecom regulator authority of India (TRAI) has asked the operators to justify the recent hike in call tariffs, JS Sarma, chairman of TRAI stated.

On the sidelines of the even organized by TRAI, Sarma told reporters “We will be examining what are the reasons for the hike, whether there is any substance in what these people (telecom operators) are saying."

Vodafone Essar, Bharti Airtel, Reliance Communications and Idea, have increased approximately 20% of their tariff charges in order to arrest the declining profitability. This decline in the profit levels is due to high competition along with increasing costs.

The companies representing the sector felt that the regulator should not question their move as there was a lot of competition and therefore, all players will be mindful of their pricing.

On conditions of anonymity, one of the newspapers quoted a senior executive from Bharti Airtel that for the past few years mobile tariff has seen a free-fall in order to expand the market. Since, urban market is near saturation, the profitability is hit, therefore, the companies need to hike the tariff. Most importantly the operating profits for most telecoms companies have dipped. There is no other alternative for the telecos to safeguard the bottom-lines. So the regulator should not probe into the pricing issue.

Another executive, but this time from the company Vodafone was quoted by media. The executive said: “The regulator has taken a view that there is enough competition in the sector and so there was no need (for it) to regulate the tariff."

VIEW: For investors it is important the telecom companies raise the tariff because profit margins for all the companies are facing substantial pressure. With interest rates increasing the cost of debt for all companies have increased. Also 3G roll out has increased the cost of burden for the companies. Operating expenses too has gone up because of the increasing network operating expenses and governmental charges, fees, levies and penalties.

Idea cellular is one stock that according to technical analysts is witnessing an up-trend. Even Bharti-Airtel has seen its stock climb in recent months. Trai's action should be monitored before buying further in the companies.

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