Telecom shares rose on Thursday after the Union cabinet cleared a relief package for the industry. Shares of Bharti Airtel and Idea Cellular rose 2.6 percent and 4.3 percent, respectively intraday but the rally soon fizzled out as benchmark indices dragged. At 11:00 am, both the stocks rose nearly 1 percent.
In an effort to ease out the debt-laden sector, the government has approved has eased spectrum-holding caps and extended payment period for spectrum acquired in auctions to 16 years from 10 years, according to Mint.
After Reliance Jio Infocomm Ltd’s entry triggering a price war, business of telecom firms were under severe pressure with the sector heading to a consolidation phase. So far this year, BSE Telecom index has slipped 18.93 percent with Bharti Airtel losing 21.73 percent while Idea Cellular slipped 25.84 percent in 2018. However, BSE Telecom index had rallied 49.47 percent last year while Bharti Airtel and Idea Cellular gained 73.37 percent and 45.85 percent respectively.
In a January 10 report, Harsh Jagnani, sector head and vice president, corporate ratings, ICRA Ltd said the industry is undergoing structural changes with consolidation being at the forefront and relaxing of the spectrum caps will ease the consolidation transactions which are in advanced stages
“The merging telecom companies would not have to surrender any spectrum where earlier they could have breached the cap limits. In addition, the additional spectrum that now remains with the telecom companies will allow for better service quality. Moreover, with growing data consumption, spectrum requirements would remain high and thus relaxing the spectrum cap is beneficial for the industry. Also the extension of time period for the payment of spectrum bought in auctions to 16 years from the current 10 years was earlier approved by the Commission which would ease the cash outflow towards auction payments,” he added. The spectrum caps were set at a time when there were 7 to 12 operators in each circle.
The ongoing consolidation is expected to result in significant reduction in number of operators, according to the rating agency. – Live Mint