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Telecom: COAI releases its presentation made to the Government

Motilal Oswal | 11 May, 2012  | Follow Author | Add to my Favourites 
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INDIAN TELECOM: COAI presentation to Government

- The GSM industry association, COAI (Cellular Operators Association of India) has released its presentation made to the Communications Minister, Mr Kapil Sibal, on 8 May 2012. According to COAI, TRAI’s recent recommendations on spectrum auction will lead to an increase in outgoing tariffs by 30p/minute – almost 8x TRAI’s calculation of 3.6p/minute.

- An additional 30p/outgoing minute outlay would reflect an increase of ~40% on the current estimated revenue per outgoing minute of 70-75p for GSM incumbents (RPM of 42-44p).

- COAI has cited several fallacies in TRAI’s calculations, including the following: (1) TRAI’s MOU assumptions include incoming minutes, which are non-chargeable at the customer-end, (2) lower spectrum assumed by TRAI v/s assigned quantity, (3) no provision for further spectrum requirement to support assumed MOU growth, (4) spectrum requirement for future data traffic not considered, (5) ignoring the impact of revenue sharing license fee and service tax, and (6) no impact of price elasticity built into TRAI calculations.

- COAI estimates that proposed re-farming would result in ~Rs1,250b incremental capex and ~Rs250b asset write-off for the industry (mainly Bharti, Idea, BSNL/MTNL, Vodafone, and Aircel).

- Motilal Oswal continues to believe that TRAI recommendations are impractical and would face stiff resistance from the industry.

- The government is expected to arrive at a conclusion on spectrum auction soon, given the Supreme Court deadline of 31 August to complete 2G auction. We do not rule out a prolonged legal battle, given significant divergence in the stance of the industry and the government/regulator.

- While the regulatory environment remains challenging, the target price for Bharti/Idea already incorporates regulatory risk outlay of Rs142b (Rs37/share) for Bharti and Rs121b (Rs37/share) for Idea.

- Over FY12-14, Motilal Oswal expects 18/26% EBITDA CAGR for Bharti/Idea, led by 10/14% traffic CAGR and 2/2% RPM CAGR in the India wireless business. Reiterate Buy on Bharti, with a target price of Rs390, and Idea, with a target price of Rs100. Maintain Neutral on RCom.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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