Voda­fone, Bharti may gain from probe roil­ing In­dia phone mar­ket

The Pak Banker - - Company& -

NEW DELHI: Voda­fone Group Plc and Bharti Air­tel Ltd. may gain cus­tomers be­cause a scan­dal roil­ing the world's sec­ond-largest mo­bile­phone mar­ket is pres­sur­ing In­dia to can­cel li­censes is­sued to smaller car­ri­ers, an­a­lysts said.

Phone users may de­fect to car­ri­ers other than those iden­ti­fied by an au­dit last month as hav­ing fraud­u­lently bought li­censes in 2008, said Ro­hit Ma­hesh­wari, an an­a­lyst at K.R. Chok­sey Shares & Se­cu­ri­ties Pvt. Idea Cel­lu­lar Ltd., In­dia's sixth­largest op­er­a­tor, may also stand to gain for sim­i­lar rea­sons, he said.

The govern­ment said this week it will give the own­ers of 85 phone per­mits two months to prove they're en­ti­tled to keep of­fer­ing ser­vices af­ter In­dia's top au­di­tor found the 2008 sale of li­censes de­prived the trea­sury of as much as $30 bil­lion. The probe has led to the res­ig­na­tion of the telecom­mu­ni­ca­tions min­is­ter and stalled par­lia­men­tary pro­ceed­ings.

"If li­censes for some play­ers get can­celed, it would cer­tainly re­duce the com­pet­i­tive in­ten­sity," said Ma­hesh­wari, who's based in Mum­bai. "We could see their cus­tomers shift­ing to es­tab­lished play­ers like Bharti and Idea, which I feel could add to their prof­its."

Bharti's 13 per­cent gain since Nov. 16, when the au­di­tor's re­port was sub­mit­ted to par­lia­ment, makes it the best-per­form­ing stock in the Bom­bay Stock Ex­change's bench­mark Sen­si­tive In­dex. IIFL Cap­i­tal Ltd. raised its in­vest­ment rat­ing on Bharti to "buy" from "re­duce" this week, cit­ing eas­ing com­pe­ti­tion and re­duced reg­u­la­tory un­cer­tainty.

Bharti rose 2 per­cent to 353 ru­pees while the bench­mark Sen­sex In­dex gained 0.1 per­cent at 12:46 p.m. in Mum­bai.

In­dia, the world's largest wire­less mar­ket af­ter China, had 687.7 mil­lion mo­bile phone users at the end of Septem­ber. Bil­lion­aire Su­nil Mit­tal's Bharti leads with 20.8 per­cent mar­ket share, fol­lowed by Re­liance Com­mu­ni­ca­tions Ltd.'s 17.1 per­cent, Voda­fone's 16.8 per­cent and bil­lion­aire Ku­mar Man­galam Birla's Idea with 10.8 per­cent.

The Comptroller and Au­di­tor Gen­eral of In­dia said last month that the telecom­mu­ni­ca­tions min­istry awarded so-called sec­ond-gen­er­a­tion li­censes to 13 in­el­i­gi­ble com­pa­nies two years ago. The min­istry sold 157 li­censes at such "un­be­liev­ably low" prices that the govern­ment may have lost 1.4 tril­lion ru­pees ($30 bil­lion) in po­ten­tial rev­enue, ac­cord­ing to the au­di­tor.

The 13 com­pa­nies had a com­bined 20.4 mil­lion cus­tomers as of the end of Septem­ber, ac­cord­ing to data from the Tele­com Reg­u­la­tory Author­ity of In­dia.

Te­lenor ASA and Emi­rates Tele­com Corp. were among op­er­a­tors that pur­chased stakes in In­dian com­pa­nies whose li­cense ap­pli­ca­tions should have been re­jected in 2008 be­cause they were un­qual­i­fied, ac­cord­ing to the au­di­tor's re­port.

Nor­way's Te­lenor, which owns a ma­jor­ity stake in Unitech Wire­less Ltd., and op­er­ates un­der brand Uni­nor, said it hasn't re­ceived a no­tice from the govern­ment and is fo­cused on ex­pand­ing and adding cus­tomers in the coun­try.

"We are not too stressed about this," said Glenn Man­delid, a Te­lenor Asia spokesman, on Dec. 1. "Our fo­cus now is to keep the mo­men­tum in the mar­ket place."

Bharti de­clined to com­ment in re­sponse to emailed ques­tions. Ra­jat Mukarji, chief cor­po­rate af­fairs of­fi­cer at Idea, de­clined to com­ment. Eti­salat's spokesman Ahmed bin Ali could not be im­me­di­ately reached. Voda­fone Es­sar Ltd. de­clined to com­ment on "spec­u­la­tive sce­nar­ios" in an e-mailed re­sponse to ques­tions.

In­vestors such as Ger­not Schrot­ter say that the ben­e­fits for the in­cum­bent ser­vice providers may not be sig­nif­i­cant.

"The un­cer­tainty still stands in the short term," said Schrot­ter, who helps man­age about $320 mil­lion in Asian stocks, in­clud­ing Bharti, at Erste Spar­in­vest KAP in Vi­enna. "Risk pre­mium needs to be added to the sec­tor, and even to the larger names."

Bharti's profit fell 27 per­cent last quar­ter af­ter it cut call rates to win a larger share of the mar­ket in Africa and com­pete with 14 other com­pa­nies in In­dia. Re­liance's profit fell 40 per­cent as a price war that slashed tar­iffs to a penny a minute damped rev­enue.

A re­duc­tion in the num­ber of op­er­a­tors in In­dia, at a time when com­pa­nies such as Bharti are get­ting ready to start of­fer­ing more profitable third-gen­er­a­tion net­work ser­vices, may help them raise call tar­iffs, Alex Mathews, head of re­search at Geo­jit BNP Paribas Fi­nan­cial Ser­vices Ltd. said. -Bloomberg

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