The Indian Telecom sector these days is going through a couple of nerve racking events that I will call as ‘growing up pains’.

News Updates

• 15^thNov 2012: the Telecom 2G spectrum auctions closed, with 57% of spectrum unsold due to high minimum bid prices, poor industry conditions and availability of spectrum with the older players. An amount of Rs 9,400 crores were collected from 5 firms, against the target of 40,000 crores.  The winners were Vodaphone (14 circles), Idea (8), Telenor (6), Videocon (6) and Bharti Airtel (1).
• 10^th Oct 2012: The Parthasarathi Shome committee set up by the government said retrospective amendments in tax laws targeting overseas M&A of companies with assets in India, should be scrapped. The recommendation is expected to bring major relief to British telecom giant Vodafone in its dispute with the income-tax department.
• 2^nd Feb 2012: the Supreme Court cancelled the 122 licenses issued in Jan 2008 by former telecom minister A Raja. It also directed the TRAI to make fresh recommendations for the telecom spectrum auction in future.
• 19^th May 2010: The 3G auctions ends with resounding success. After intense bidding, the auction collected 68,000 crores from 7 private and 2 govt players, about double the initial target.

Analysis:

• The limited success of the Nov’12 auctions will have a strong impact on telecom regulation in India. Hopefully the government/ regulators will turn their attention to improving the health of the industry, reducing friction, litigation and excessive controls and restrictions.
• Auction will continue to be the method of handover of telecom licenses and spectrum in the future. The difference is that the reserve prices, and total income from auctions will reflect realistic telecom market conditions and industry health.
• How the market has changed completely in the last 2.5 years. The sector has gone from:

Indian Telecom Industry – Stages, JainMatrix Investments (Click to enlarge graphic)

Action Points:

• Bharti Airtel, Idea, Tata Comm, Reliance Comm and MTNL are listed. Of the above five, we are positive on Bharti Airtel (find report) and Idea.
• Vodaphone is likely to have an IPO in next 2-3 years.
• Bharti Airtel may list a subsidiary, Bharti Infratel, which owns their telecom Towers.

JainMatrix Knowledge Base:

Other reports on Telecom

• Bharti Airtel: This is a year of consolidation – REPORT
• Indian Telecom at Cross-Roads – Article
• Indian Equity – Winds of Change – Article

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