Telecom sector: Alarm bells getting louder

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Telecom sector: Alarm bells getting louder
Bharti Airtel: Quotes, News
BSE 309.40BSE Quote0.1 (0.03%)
NSE 309.75NSE Quote0.65 (0.21%)
Idea Cellular: Quotes, News
BSE 80.00BSE Quote1.7 (2.13%)
NSE 80.00NSE Quote1.7 (2.13%)
The telecom sector is one sector that has seen a paradigm shift in the last few years.

A shift that has seen lesser moolah being raked in and debts mounting; a shift that has seen myriad policy interferences, a shift that has seen investors in the sector becoming poorer; a shift that has seen happier telecom executives to a set of piqued executives venting their anger over frequent policy interferences; a shift that has transformed from decent profits to abysmally low profits (and in most cases losses).

From the absurd to the ridiculous

TRAI earlier this week suggested that the auction of 5 megahertz (MHz) of spectrum in the 1,800MHz band at a total Rs. 3,622 crore per MHz across the country. This comes to a total price of as much as Rs 18,110.9 crore for the full 5MHz that’s needed to start mobile telephony services.

Now, this is a ridiculously high price and not sure how many companies would really bid.

In fact, a leading brokerage house UBS said that recommendations on 2G spectrum pricing "defies economic rationale," and feels the sector could plunge into litigation in the next few years  if these recommendations are accepted.

The Mint in a completely analysis said that it was “sounding the death knell” for the sector, while the Economic Times, stated that the balance sheets of telecom sector would go into in the “danger zone”. In fact, debts on the books of telecom companies is high and even banks may now be reluctant to lend to the sector.

It seems the authorities are keen to recover what they lost under A Raja, by now becoming have a ridiculous pricing policy.

Investors in the sector, including foreign investors are a disillusioned lot. The government's governance of the sector remains poor, plagued by scams, regular interventions and ridiculous and absurd pricing policies.

Shares of telcom companies, which a few years ago were the darlings of the market, have now turned laggards. Reliance Communications which was one traded at a high of as much as Rs 800, has plunged to Rs 78, Bharti Airtel which was once traded at a high of Rs 555, is currently traded at Rs 315 and Idea is down from a high of Rs 155 and is currently at Rs 82.

Unless the government has more transparent policies, better pricing and lesser interference, expect the sector and shares in the sector to languish.

Read more about: bharti airtel, idea cellular
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