Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Telecom: Connection restored - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Apr 26, 2003

    Telecom: Connection restored

    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 MTNLís end. On the other hand, MTNL was not subjected to the same regulation if the call were to end at say, Idea Cellularís 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 Tataís. 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 Bhartiís 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

    Bharti Airtel: A Good Quarterly Performance (Quarterly Results Update - Detailed)

    May 6, 2016

    Bharti Airtel has reported a8.4% YoY growth in the topline and an increase of 2.8% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: Ends the Year Positively (Quarterly Results Update - Detailed)

    Apr 27, 2016

    Bharti Infratel has reported a 7.3% YoY growth in the topline and an increase of 18.7% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: A Good Quarter (Quarterly Results Update - Detailed)

    Apr 8, 2016

    Bharti Infratel has reported a 4.9% YoY growth in the topline and an increase of 11.5% YoY in the bottomline for the quarter ended December 2015.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)