Indian phone carriers plunged after Credit Suisse Group AG downgraded Bharti Airtel Ltd. (BHARTI), the No. 1 operator, and another company on concern competition from Reliance Industries Ltd. (RIL) will erode earnings.
Credit Suisse downgraded Bharti to neutral and Idea Cellular Ltd. (IDEA) to underperform on rising risk of incumbents either losing customers or having to take pre-emptive price cuts to retain users who generate bulk of volumes and profits. It also cut the rating for Singapore Telecommunications Ltd. (ST), which owns a minority stake in Bharti.
Bharti, controlled by billionaire Sunil Mittal, closed 4.8 percent lower at 315.55 rupees in Mumbai, its biggest decline since Sept. 3. Idea, owned by billionaire Kumar Mangalam Birla, plunged 7.2 percent, the most since May 19, 2010, to close at 156.05 rupees.
Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd., which is currently preparing for a countrywide rollout of its broadband wireless access services, has also applied to bid for 2G spectrum at government auctions starting Feb. 3, according to news channel ET NOW. Atul Dwivedi, Reliance Jio’s New Delhi-based spokesman, didn’t respond to an e-mail seeking comment on the move.
Participation of Reliance Jio is a “negative surprise,” Credit Suisse analysts Sunil Tirumalai and Chunky Shah wrote in a note today.
“RIL’s telecom strategy has been quite an enigma for more than three years now,” wrote Tirumalai and Shah, citing lower spectrum prices and improving sector tariffs as reasons for Reliance’s decision to switch from its earlier data-focused strategy. “The immediate impact is that of intense competition in auctions. The longer term impact could be increased competition and higher capex for incumbents.”
Reliance Communications Ltd. (RCOM), controlled by Ambani’s younger brother Anil who has tower and fiber-sharing deals with his sibling, dropped 4.2 percent 121.50 rupees. The benchmark S&P BSE Sensex declined 0.1 percent.
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