Indian Financial Markets: Spectrum order risk for telcos; Bharti top pick: JM Fin

Mon, Aug 06, 2012 at 11:04

Like this story, share it with millions of investors on M3

Spectrum order risk for telcos; Bharti top pick: JM FinThe cabinet on Friday had fixed a minimum base price of Rs 14,000 crore for the auction of telecom spectrum. While there has been mixed reactions from the street, Sanjay Chawla of JM Financial believes the litigation remains a real risk for the telecom sector. . Share . Email . Print . A+A- Sanjay Chawla, JM Financial

The cabinet on Friday had fixed a minimum base price of Rs 14,000 crore for the auction of telecom spectrum. While there has been mixed reactions from the street, Sanjay Chawla of JM Financial believes the litigation remains a real risk for the telecom sector.

According to Chawla, telecom companies can challenge the order on grounds of lack of spectrum auction. Talking about the various telecom players, Chawla said RIL may not acquire spectrum and launch Greenfield operations. It would be more logical for RIL to acquire an existing operator, he added.

Other major telecom operators like Bharti Airtel and Vodafone is likely to be impacted when their licenses are up for renewal, Chawla told CNBC-TV18. It might impact tariffs by 25-30% if a complete pass through is assumed. However, he keeps Bharti amongst his top picks in the telecom sector and recommends investors to stay away from Idea till its bidding strategy is clarified.

Below is the edited transcript of the interview on CNBC-TV18.

Q: All the telecom companies are up in arm saying that they will take the government to court, do you see litigation as a real option?

A: Absolutely, because companies have been talking about taking on the government from a legal point of view ever since the Supreme Court (SC) verdict came out and their review petitions were not accepted by the SC. Now ofcourse the final proposals are out from the cabinet and the final decision has been made.

There are two-three grounds of litigations. One is the restriction in the supply of spectrum. Even though about 20 megahertz has been cancelled based on the SC verdict, government is only auctioning 10-13 megahertz of spectrum. There is a scarcity which is apparently being created.

Secondly, a high spectrum price in our view is against the public policy and also against the spirit of a free and fair auction. It is preventing market from discovering the true value of the spectrum. So on both these grounds, there is ground two challenge, there is room to challenge the cabinet decision.

Q: How do you see the auction proceeding? What is your sense of how early or when the timing of the auction could be and do you think there is a realistic probability of the auction actually bombing?

A: On the timing, clearly, auction will not be completed in the next 20-30 days as per the previous deadline. I guess it is very likely that auction will now happen in the October to December quarter and government will probably ask for an extension to the existing deadline in the next week or so.

Also in terms of how successful the auction will be, a lot depends on the position taken by the potential bidders, by companies like Uninor, Idea Cellular and also Sistema. At this point of time, there seems to be an even matching of supply and potential demand.

But, if a new entrant jumps into the fray from a pure Greenfield operator, then I think the bids could go higher. Otherwise, there is a good chance that in some of the circles, not all the spectrum which is on auction will get picked up.