Bharti, Idea Tumble on Regulator’s License Fee Proposal

Bharti, Idea Tumble on Regulator’s Fee Proposal
The Bharti Airtel Ltd. logo is seen through a window at a retail store in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg

Indian mobile-phone operators slumped after an 11-fold increase in license fees proposed yesterday by the nation’s regulator raised concerns that such pricing will stunt the industry’s growth.

Bharti Airtel Ltd., the country’s biggest operator, fell as much 7.5 percent in Mumbai, the lowest intraday level since July 2010. Idea Cellular Ltd. declined as much as 15 percent, the biggest intraday drop since February 2011. Reliance Communications Ltd., the nation’s second-biggest carrier, fell as much as 3.5 percent, its lowest intraday price since Jan. 10.

The Telecom Regulatory Authority of India yesterday set a reserve price of 181 billion rupees ($3.4 billion) for a permit spanning the entire country, compared with 16.6 billion rupees for similar second-generation licenses sold in 2008. Vodafone Group Plc, the world’s biggest operator, said the non-binding recommendations will do “irreparable harm,” while the domestic lobby group Cellular Operators Association of India called it a “disaster” that would discourage carriers.

“TRAI’s expensive recommendations are worse than what market anticipated,” said Sachin Gupta, a Singapore-based analyst at Nomura Holdings Inc. “If these measures are expected, they are likely to put a greater cash burden on the telecom sector as a whole.”

Drawing Rules

India is seeking to redefine rules for auction of spectrum after the Supreme Court in February canceled 122 second-generation permits following a report by the nation’s auditor that said they were sold at “unbelievably low prices” and the faulty sales may have cost the exchequer as much as $31 billion four years ago. The government is also trying to raise money to narrow the budget deficit after the shortfall exceeded its target by a percentage point in the year ended March 31.

Bharti reported a 22 percent drop in net income in the quarter ended Dec. 31 as subscribers curbed mobile use amid rising tariffs. Reliance Communications said profit declined 61 percent in the same period on higher debt costs.

Bharti raised call rates 20 percent in most parts of India last year, after a price war sparked by the entry of Telenor ASA and NTT DoCoMo Inc. into the world’s second-largest wireless market drove rates to less than a penny a minute.

“The government promised that they won’t milk spectrum for revenue, but this type of pricing will be the death knell for the industry,” Rajan Mathews, director general of the New Delhi-based Cellular Operators Association, said yesterday. “The price points mentioned will prevent any new operators from entering the market and kill any hopes incumbent players had of reacquiring their spectrum.”

Bharti fell 3.1 percent to 302.75 rupees as of 11:41 a.m. Idea declined 3.5 percent to 80.45 rupees and Reliance Communications dropped 1.4 percent to 80.35 rupees.

Grown Accustomed

The regulator said the increase in price is part of the industry’s liberalization which allows operators to use “any band, any technology” on their awarded spectrum. The recommendations will go to the government for approval.

“Indian operators have grown accustomed to certain prices, so this may seem harsh, but I’m confident that the industry will prevail,” TRAI Chairman J.S. Sarma told reporters yesterday in New Delhi. “Over a 20-year projection, these prices are more than manageable and we will give companies enough time to pay these prices.”

Norway’s Telenor and Russia’s AFK Sistema are among companies that will lose their licenses following the court order. They have sought legal remedies to get their permits restored, failing which they risk losing a combined $5.8 billion investment in the South Asian country.

Former Telecommunications Minister Andimuthu Raja is in jail in New Delhi, facing trial, for the 2008 spectrum sales. Former bureaucrats, a lawmaker and a few company executives are facing charges in the case. All deny any wrongdoing.

The government has filed a review petition, questioning the court’s jurisdiction over policy matters. The top court will hear arguments on May 1.

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