On the face of it seems an unlikely question. But in the the aftermath of a bungled spectrum auction, and with India’s telecoms operators facing what could be their weakest quarterly revenue performance in three years, might the worst actually be over for the beleaguered sector?
The market seems to think so. Bharti Airtel, the nation’s largest operator by revenue, has seen its stock rise by more than 10 per cent since the day 1 of the auctions last Monday, after which it was clear the contest would be exactly the type of damp squib most analysts expected.
The prospect of a second contest to clear out the spectrum left unsold last week – for four regions including Mumbai and New Delhi – seems to be benefiting Bharti in particular. The knock-on effect of a lower-priced re-run could help depress the prices Bharti is likely to pay to renew its existing telecoms licences over the next few years.
It’s all a shock for India’s cash-strapped government, which had hoped to earn roughly four times the $1.7bn raised during the bidding. But in the stock market, the mood around telecoms is improving.
The case for optimism was made most strongly on Monday in a Credit Suisse note entitled “The Turning Point”, in which the bank’s respected Mumbai-based telecoms analyst Sunil Tirumalal argued that the auction’s conclusion, in combination with the renewed prospect of increased tariffs, promised a brighter future.
“Recent events in the Indian telecom sector make us revisit our key arguments and take a more constructive view of the sector…. Indeed, our checks indicate that over the past few weeks operators have started testing the market for tariff hikes by reducing discounts.”
The prospect of a rise in India’s ultra-low consumer tariffs has long been the industry’s hope for salvation, ever since Bharti CEO Sunil Mittal first raised the prospect last year, a pledge he has since frequently repeated. There is scant evidence that consumers are being charged more: for example, a typical Vodafone pre-paid card offers calls for about Rs 0.60 or $0.01 per minute.
But talk of hikes does indeed look more plausible in the aftermath of the auctions, which have given India’s telecoms scene a slim-line new look. The sector is now going to around eight players — compared to well over a dozen when the Supreme Court precipitated a clear-out of many minor operators by cancelling licences back in February.
Yet while even a small amount of optimism in the battered sector is welcome, it should be carefully qualified too. India’s fickle government is yet to say anything concrete on plans for a second auction, and is unlikely to do so until next week at the earliest — meaning hopes for clarity on future regulation may be premature.
Meanwhile the industry’s financial performance is as bad as ever, with most of the major operators posting of a decline in revenues over the last quarter — in part because of seasonal factors, but also likely on account of weaker demand against the backdrop of India’s slowing economy. Put another way, the sector might have hit bottom — but it still faces a long climb back.
Telenor: the biggest bidder in Indian telecoms auction beyondbrics
Indian mobile auction plans attacked, FT