Telecom: Connection restored - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Telecom: Connection restored

Apr 26, 2003

The Indian telecommunication sector has entered into a new growth phase starting FY04. The lack of level playing field has been one of the key deterrents in accelerating subscriber base growth, both in basic and cellular, in the past. The long-term objective of the National Telecom Policy 1999, to increase penetration level to 15% was itself under threat. But after quite a lot of deliberations, the interconnection regime is largely in place. From now on, players who have invested significant sum towards license fee and infrastructure can focus a lot more on their core operations. An efficient interconnection regime is vital for the telecom sector. Just to highlight the imbalance in the erstwhile interconnection regime, cellular operators like Idea Cellular were required to pay a termination charge to basic operators like MTNL if the call terminates at MTNL’s end. On the other hand, MTNL was not subjected to the same regulation if the call were to end at say, Idea Cellular’s network.

The disadvantage of such a regime is that there is a lack of level playing field. But the basic operators argued in favor of such a regime based on the premise that the capital expenditure towards setting up a last mile connectivity is higher for basic operators than cellular players and therefore, it is logical to have some benefits. This was valid, albeit to an extent. However, after the recent interconnection agreement, this area of concern has been addressed.

From now on, cellular operators will receive a termination charge from the likes of MTNL. But this will be lower than what Idea Cellular will have to shell out as interconnection charges to MTNL thus providing some benefit to basic operators. Also, compared to the earlier regime, the private fixed line operators will now start receiving termination charges for all long distance calls. Without getting into further complexities of the new regime, what this means to telecom companies is that there is profit to make in the future. Reducing long distance tariffs for mobile users to match the threat from Wireless in Local Loop (WiLL) service providers and free incoming calls can become a reality. These will not only add to the growth in subscriber base but also increasing usage levels.

Having looked at the broader trend, consider what is there in offer for listed telecom companies like MTNL, VSNL, Hughes Tele and Bharti in brief.

First, understanding of the profile of the respective players is important. MTNL is a basic and cellular service provider in Mumbai and Delhi where penetration levels are the highest in the country (4.5 m subscribers). VSNL is primarily a domestic, international long distance and Internet service provider owned by Tata’s. Hughes Tele, which is also a Tata company, is a basic and WiLL service provider in Mumbai and Maharashtra (200,000 subscribers). Bharti is more integrated in nature. It provides cellular facility in 15 out of 21 circles in the country and fixed line service in 6 circles. It is also a domestic and an international long distance service provider (owns a submarine landing station in a joint venture with Singtel also). Total subscriber base of Bharti in FY03 was 3.4 m.

Basic operators would benefit from following factors:

  1. Increase in maximum monthly rentals for basic telephony to Rs 280 (earlier Rs 250), reduction in number of free calls from 60 to 30 for urban users, discounted calls i.e. slabs and fall in pulse duration. These will directly add to the profitability of basic operators. MTNL, which has been facing stiff competition, will have some respite.

  2. Both cellular and basic operators will benefit from the new interconnection regime. Bharti, with an end-to-end presence, is likely to benefit significantly in the long term.

Overall, the new regulation is likely to spruce up competition, accelerate the pace of consolidation and eventually increase penetration level in the country. Going by Bharti’s fourth quarter performance (posted a profit of Rs 256 m as compared to a loss last year despite expansion in operations), making profits in the telecom sector does not seem a distant dream.

Equitymaster requests your view! Post a comment on "Telecom: Connection restored". Click here!


More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Apr 13, 2021 03:38 PM