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With the lukewarm response to the recently held auction of spectrum in the 1,800 MHz bandwidth, leading to less than expected outgo on spectrum acquired and the one-time spectrum charge to be levied on operators, telecom stocks are expected to trade positively next week. As part of its decision on one-time spectrum charge, the government had decided to levy one-time spectrum fee prospectively on operators for the remaining period of their licence, based on the auctioned discovered price.
Along with a muted spectrum auction, telecom companies strategy to gradually reduce dolling out freebies such as lower discounts and free minutes, is expected to improve their margins. Telecom companies are now pulling back on dealer commissions, reducing validity periods, cutting back on free minutes etc, which we believe should bode well for RPM (revenue per minute) and margins in the near term.
In the medium term, Bharti Airtel and Idea Cellular are expected to rise another 10% from their current level. We reiterate our Buy on Bharti and Idea as we expect both telecom companies to benefit from rising tariffs and declining competition. In the December futures contract, investors have taken long positions on telecom stocks, indicating that the bias for them remains positive.
