Telecom Stocks Outlook For The Week – 04 To 08.12.2017

Telecom Stocks Outlook For The Week – 04 To 08.12.2017

             Equity Cash/Futures/Options Segment 

Stocks of telecommunication companies are expected to be subdued in the coming week as the tariff war in the sector continues after the entry of Reliance Jio Infocomm. The focus is on RJio, whether
they maintain the same pricing strategy or not. It seems unlikely though as the company is focusing on improving profitability. Earnings in Oct-Dec may continue to be under pressure after the Telecom Regulatory Authority of India cut interconnect usage charges to 6 paise from 14 paise effective Oct
1. Interconnect usage charges are paid by the operator from whose network a call is made to the network the call lands on. About 4% of market leader Bharti Airtel's operating income is from net
revenue from interconnect usage charges. Next week, we suggest investors to stay away from Reliance Communications, which he fears may even decline to single-digit level. Earlier this week, China Development Bank filed an insolvency plea against debt-laden Reliance Communications before the National Company Law Tribunal seeking repayment of dues worth 90 bln rupees. However, the company on Thursday claimed that a majority of its lenders, both domestic and
foreign, have opposed the plea. There should be some stability in the industry over the next two to three quarters. However, the period will be crucial as about 100 mln subscribers of Tata Teleservices, Aircel and Reliance Communications will be up for grabs by the major players. We expect Bharti Airtel to be the biggest beneficiary as it is more aggressive and is better prepared for the acquisitions.
The company has already acquired Tata group's telecom services on a cash-free, debt-free basis, apart from domestic operations of Telenor India and Tikona Digital Networks. On the other hand, we believes the merged entity of Idea and Vodafone is unlikely to get many of subscribers on the block, while Reliance Jio, being a 4G player, will find it difficult to get feature phone users of the smaller players. The last one year has been turbulent for telecom operators after the entry of Reliance Jio, which offered free services for almost seven months and later announced rock bottom tariffs. This has led to consolidation among operators. A positive for the sector could be that the likely acceptance by Department of Telecommunications of TRAI's recommendations last week to consider raising the overall cap on spectrum held by operators. A Cabinet nod for measures approved by the Telecom Commission, the highest decision-making body in the Department of Telecommunications, to ease financial stress in the sector is also awaited. The Telecom Commission in September approved increasing the time period for operators to pay for the spectrum bought in auctions to 16 years from 10 years. It also approved a cut in the interest rate on penalty for delayed payment on spectrum usage charges and licence fee payment. If approved by the Cabinet, the measures are expected to ease liquidity for operators.

Source : Cogencis Information Services Ltd.

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