The stocks prices of Bharti and Idea reflected the shock of the markets at the recommendatons of telecom regulator. Both the stocks were down over 8 per cent in the day’s trade. Linking the price of 2G spectrum to the price paid for 3G spectrum can hit the profits of these firms in a very big way.
If these recommendations are accepted, Bharti Airtel will see a hit of Rs 3,500 crore while Idea’s loss will be Rs 1,100 crore, notes Citi, a brokerage. “The linking of new spectrum charges to 3G is a negative given the high 3G bid intensity,” Says Citi in its note.
Prices for pan-India 3G spectrum have crossed Rs 14,000 crore — and are well past the fair value estimates that were doing rounds in the markets.
Another brokerage house, UBS, has cut the price targets on Bharti and Idea by about 10 per cent each — to Rs 380 and Rs 72 respectively. However, there is more to the troubles facing the telecom sector than Trai’s latest recommendations.
In the last one year, telecom has been perhaps the worst performing of all sectors. Bharti Airtel and Reliance Communications are down about 35 per cent each over the past one year.