Home Ministry clearance pending for FIPB approval : ET

NEW DELHI: India’s commerce ministry has cleared the proposal by the Russian government to acquire a 20% stake in telecom company Sistema-Shyam for

about $676 million.



But, the Foreign Investment Promotion Board (FIPB), the apex government body that approves all major investments in the country from abroad, will clear the proposal only after the home ministry gives a clean chit to the deal, ET has learnt.



ET had first reported in March 2009 that the Russian government planned to pick up a 20% stake in Sistema-Shyam for about $680 million. This values the company at about $3.5 billion.



During the FIPB meet last week, the Department of Industrial Policy and Promotion (DIPP) had conveyed to the board that it had no objections with Sistema-Shyam’s move to issue equity shares for $676 million to the ‘Federal Agency for State Property Management of the Russian Federation’.



At the same time, the DIPP also added that since the investing company was a firm owned by the Russian government, the clearance from the ministry of home affairs were required for the proposal.



Sistema, one of the largest public diversified corporations in Russia and the Commonwealth of Independent States (CIS), has a 74% stake in the joint venture with the Shyam Group, which offers mobile services under the ‘MTS’ brand in India. Sistema-Shyam was amongst the nine new companies who were given licences early last year to launch mobile services.



The telco, which recently launched mobile services in Delhi, plans to be a pan-India player by the end of next year.



Once the Russian government acquires a 20% stake in the telco, Sistema’s stake in the JV will come down to about 54%. But, Sistema will continue to have a majority stake and management control of the company. There will be no changes in the shareholding in Shyam, who will continue to have a 24% equity in the JV.



As reported earlier by ET, the Russian government is utilising the money under the Rupee-Rouble debt agreement between both the countries to finance its 20% stake in the telco.



With India owing huge amounts to Russia (for products bought prior to the collapse of the Soviet Union), both the governments had agreed that Russia can utilise this rupee debt to finance its investments and JV projects in India.

DoT nod for Russian govt's 20% stake in Sistema Shyam at 49.31 per share

DoT nod for Russian govt's 20% stake in Sistema Shyam
NEW DELHI: The Department of Telecom has 'no objection' to the Russian government picking up 20 per cent stake in telecom service provider Sistema-Shyam for a little over $676 million (Rs 3200 crore).
"SSTL (Sistema-Shyam Telecom Ltd) is permitted to bring in foreign equity by issue of fresh shares as per the Lock-In principles of the DoT,'' the department said, responding to a Foreign Investment Promotion Board (FIPB) query where the proposal has bee n pending.
A DoT note to the FIPB said SSTL has sought approval for FDI up to 20 per cent by the Federal Agency for State Property of Russian Federation into the company by subscription of up to 66.27 crore fresh equity shares of nominal value of Rs 10 a share at t he rate of Rs 49.31 per share approximately for an investment of up to USD 676 million dollar.
The Indian promoters, it further said, have also proposed to infuse additonal equity to keep 26 per cent Indian shareholding. SSTL, currently operating in six circles, is in need of huge funds for a pan-India expansion.
Post transfer of the equity by the Russian government, Sistema's holding in the JV will go down to about 54 per cent.Sistema will still have a majority stake and enjoy management control of the company. There will be no changes in the shareholding of Sh yam, which will continue to have a 26 per cent equity in the JV. - PTI

SSTL subscriber growth picks up - notches 330K subscribers in Oct

As per data provided by AUSPI (http://www.auspi.in/news/AUSPI_Sub_Data_OCT_2009.pdf) SSTL has added about 3.3 lac subscribers in Oct vs 2.2 lacs in Septmber thus showing  a 50% growth in subcsriber acquisition.

MTS launches MBlaze service in Chennai

ENS Economic Buresu

First Published : 19 Nov 2009 02:09:00 AM IST

Last Updated :

CHENNAI: Mobile high-speed data services will never be the same again in India, with MTS, the mobile telephony services brand of Sistema Shyam Teleservices Ltd (SSTL), launching its new and innovative Mblaze service. MTS will have a large seamless high-speed mobile data services network in South India offering speeds of up to 3.1 Mbps on Rev A.With this launch, MTS offers the fastest Internet data services in Chennai, Coimbatore, Tiruchy and also in other large cities in adjacent States of Karnataka and Kerala (Kochi, Calicut, Trivandrum, Mysore, Mangalore, Bengaluru, Belgaum.) Free Internet browsing to certain websites like Yahoo, Wikipedia and makemytrip will allow subscribers to stay abreast with the latest in news, sports and fashion. Subscribers will be able to shop and also browse certain educational sites for free.MTS customers will now be able to use this pre-paid service with rates as low as 10p/MB and there will be no roaming surcharges while using the MTS network.Srinirao Saripalli, Chief Operating Officer, Tamil Nadu and Kerala Circle of MTS, said, “MTS has already established one of the best and largest data capabilities in India and we hope to provide our subscribers with unparalleled mobile high speed data services experience combined with transparent billing.” Lenny Musatov, Chief Marketing Officer of SSTL, said, “With MBlaze, MTS subscribers will be able to browse the web free for news, sports, fashion, lifestyle, travel and to shop using popular websites like Yahoo and Wikipedia, etc.”

Sistema Shyam awaiting India OK for new share issue to Russian govt : Dow Jones Newswires

R. Jai Krishna and Dhanya Ann Thoppil, Dow Jones Newswires
Monday 16 November 2009

Indian operator says it expects government approval for $600 million share issue by December.

Telecommunications company Sistema Shyam TeleServices Ltd. is awaiting clearance from India's investment board for its proposal to issue new shares of about $600 million to the Russian government, a senior executive at the company said Monday.
"We have already applied for the foreign investment promotion board (FIPB) and other kind of clearances," T. Narasimhan, deputy chief executive at Sistema Shyam, told Dow Jones Newswires, without elaborating.
Narasimhan expects government approval to come through by December.
The FIPB regulates all foreign direct investments into India.
The Russian government has already allocated the funds in its annual budget statement for buying a stake in Sistema Shyam, Narasimhan said.
Russia's Sistema JSFC owns 73.71% of Sistema Shyam, while India's Shyam Group holds 23.79%, with the public holding a minority.
In October, Cheremin Sergei, deputy chairman of Sistema JSFC, said Sistema Shyam could offer a 20% stake to the Russian government.

The Russian government is planning to use part of the reserve balance of $2 billion currently parked with the Reserve Bank of India--which it has to invest in projects in India--for the Sistema Shyam investment, Sistema Shyam chief executive Vsevold Rozanov had earlier said.
Sistema Shyam is one of the newer entrants to India's mobile phone market, the world's fastest-growing market based on the number of subscriber additions.

It operates mobile phone services on the code division multiple access, or CDMA, technology in eight of India's 22 telecom service areas and had 2.1 million users at the end of September.
It competes with CDMA operators Reliance Communications Ltd. and Tata Teleservices Ltd., which have 73 million and 47.8 million subscribers, respectively.

SISTEMA CEO says...

in his corporate presentation on Oct 20th that SSTL is negotiating with more than one potential partner for a stake sale :

Excerpts from his presentation available at http://www.sistema.com/investors/presentations :

Strategic rationale for Sistema

1.Maintain strict financial discipline
•Cash contribution from a partner will facilitate funding of the project in 2010-2012
•The engagement of a partner will reduce start-up risks for Sistema
The engagement of a partner will facilitate obtaining the equity financing that the start-up requires.

Summary
•Transaction status: negotiations in progress
•Sistema made the following proposal to potential partners in the SSTL project:
•Stake offered: 20-30%
•Contribution from a partner: cash and industry expertise
•List of potential partners defined
•Negotiations continue, no final terms have been approved by Sistema

Partnership at SSTL- The deal is not closed yet

TRAI’s Report Card On Kolkata gives MTS a thumbs up !

 

TRAI published its Comparative performance of Mobile Service Providers in Kolkata and West Bengal Telecom Circle the following factors were looked into it  Quality of Service (QoS) Parameters of Accessibility,Call Drops,Voice Quality,  Billing Complaints.

Vodafone emerged as Number one mobile operator in Kolkata circle in terms of accessibility where as Tata Teleservice (cdma) emerged as number two followed by MTS(cdma) in third position ,Aircel in forth, Reliance GSM in fifth, Airtel in sixth position, BSNL in seventh, Reliance CDMA in eighth .

In Terms of Call Drop-Aircel rated the worse GSM network with Highest number of call drops, BSNL in second position  where as  MTS CDMA  had least number of call drop in Kolkata circle.

In Terms of Voice Quality BSNL was rated with best Voice Quality, followed by TTSL-CDMA in second position and MTS in third position.Vodafone was rated worse in terms of Voice Quality amongst all operator in Kolkata Circle.

Here is the Full Report for Kolkata and West Bengal telecom circle.

Name of Service Provider	Name of Service Area	Accessibility: % age of call made by subscriber and Successful with in the operators Network (>95%)	Call Drop Rate: % age of establish calls getting disconnected Due to Network Problems (<3%)	% age of calls with good Voice quality (>95%)	Resolution of Billing and Charging Complaints resolved with in 4 weeks (100% with in 4 weeks)
Airtel	Kolkata	98.4%	0.8%	97.7%	100%
Airtel	W.Bengal	95.7%	1.5%	95.8%	100%
BSNL	Kolkata	98.0%	2.0%	99.0%	100%
BSNL	W.Bengal	97.0%	1.6%	96.0%	100%
DishNet (Aircel)	Kolkata	99.2%	1.3%	97.9%	100%
DishNet (Aircel	W.Bengal	95.2%	2.6%	94.0%	100%
Reliance Comm (CDMA)	Kolkata	97.4%	0.5%	98.6%	100%
Reliance Comm (CDMA)	W.Bengal	97.0%	1.2%	97.6%	100%
Reliance Telecom (GSM)	Kolkata	98.6%	1.0%	96.6%	NA
Reliance Telecom(GSM)	W.Bengal	98.5%	1.6%	96.9%	NA
Sistema Shyam (MTS)	Kolkata	99.6%	0.3%	98.7%	NA
Sistema Shyam (MTS)	W.Bengal	99.0%	1.0%	98.2%	NA
Tata Teleservices (CDMA)	Kolkata	99.8%	0.6%	98.9%	100%
Tata Teleservices (CDMA)	W.Bengal	99.1%	0.9%	98.3%	100%
Vodafone Essar	Kolkata	100%	0.6%	97.4%	100%
Vodafone Essar	W.Bengal	97.5%	1.1%	97.0%	100%

MTS India’s MBlaze Mobile Broadband Plan In Details

MTS India, the CDMA mobile service of Sistema Shyam Teleservices Ltd (SSTL), commercially rolled out its Moble Broadband Service M-Blaze in Delhi, Trivandrum, Calicut, Kochi, Chennai, Coimbatore, Trichy, Kolkata, Siliguri, Durgapur, Patna, Jaipur, Jodhpur and Bhiwadi.

MTS claims that it has the biggest high-speed data services network in all above city specially designed for this which includes  several BTS to provide the best wireless internet while on move.

The MTS MBlaze Mobile Broadband service also provides Free Internet Surfing on Yahoo India, Wikipedia and MTS India website. Email Access and attachment downloads will be free for Indian yahoo email addresses e.g. myname@yahoo.in, and myname@yahoo.com email addresses.

The MTS MBlaze EVDO Wireless Broadband Internet Services comes in two options; the Standard Data Card comes at the price point of Rs.2999 with 2GB Free Downloads while the Premium Data Card cost Rs.3499. MTS also launches attractive Prepaid Data Plans starts from Rs.198 per month.

M-Blaze Standard – Rs.2999
-Plug & Play,
-Speed up to 3.1mbps,
-Upload Speed 1.8 mbps
-2GB of in-built memory.

M-Blaze Premium –Rs.3499
-Plug & Play,
-Speed up to 3.1mbps, Upload Speed 1.8 mbps
-Micro SD card slot for Data Storage
-Stylish swivel modem for flexible usage
-2GB of in-built memory

MBlaze EVDO Mobile Broadband Plans (Prepaid)-

• MTS MBlaze Lite Rs 198 - 30 days validity. -FREE Download Upto 150 mb beyond which 50 paisa per MB will be charged.
• MTS MBlaze Half Plan Rs 498 – 30 days validity. -FREE Download Up to 0.5GB beyond which 50 paisa per MB will be charged.
• MTS MBlaze1 Plan Rs.598 – 30 days validity. -FREE Download Up to 1 GB beyond which 50 paisa per MB will be charged
• MTS MBlaze3 Plan Rs.798 – 30 days validity. FREE Download Up to 3GB beyond which 50 paisa per MB will be charged.
• MTS MBlaze5 Data Plan Rs.898 – 30 days validity. Free Download Up to 5GB beyond which 50 paisa per MB will be charged.
• MTS MBlaze Night Data Plan Rs.595 - 30 days validity. FREE Download of up to -10GB in night only (10pm to 7am) beyond 10 GB, 50 paisa / MB and during Day surfing charges will 50 paisa per MB will be levied.
• MTS MBlaze10 Data Plan Rs.1200 – 30 days validity FREE Downloads-10 GB beyond that 50 paisa per MB will be charged.

• MTS MBlaze15 Plan Rs.1500 – 30 days validity FREE Downloads-15 GB beyond that 50 paisa per MB will be charged.

MTS India Introduces Online Recharge

November 8th, 2009

MTS India, the Sistem- Shyam televenture with world class technology & services brings online recharge facility for its users. MTS India, the pan India CDMA license holder operates now in Rajasthan, Tamilnadu, Kerala, Kolkata, West Bengal, Bihar & Jharkhand, Delhi, Karnataka out of 23 telecom circles.

Now all MTS customers can recharge their MTS prepaid mobile connections & MBlaze EVDO based Mobile Broadband connections by clicking over Internet.MTS India online recharge is based upon BillDesk services, which offers MTS subscribers to recharge MTS mobiles and MBlaze connections using their own credit, debit or online bank accounts.

Recharge is available via Credit Cards (Visa, Dinners, MasterCard Amercian Express Card ), ICICI Debit card or major banks’ online accounts like SBI, Axis Bank, HDFC Bank, ICICI Bank, PNB, Allahabad Bank, Bank of Baroda, City Union Bank, ABN AMRO Bank, Indian Overseas Bank, KV Bank, Kotak Bank etc.

On this occasion MTS India website (www.mtsindia.in) gets a makeover, Online recharge option can be availed from the bottom dock’s ‘Recharge Now’ button. Online recharge is available for MTS mobile prepaid from topup Rs 10  to Rs 100 and all Mblaze vouchers. We can keep our fingers crossed as, soon MTS will start selling new connections and handsets online.

Board Meeting on Nov 11

In a peculiar development, the parent companyof SSTL,  SISTEMA,  has decided to hold its Board Meeting on Nov 11 in Bangalore India.  This is the first time that SISTEMA will hold a board meeting outside Russia.

With the meeting being attended by the top honchos of the company, it is very likely, that a road map to the IPO may get initiated / outlined at this meeting. Additionally, other initiatives such as setting up of SIM card etc are also liekly to be announced. We at AMSOST believe that this meeting could be a path changing meet for all of our shareholders, giving us more clarity to the listing plans of the company.

Keep tuned in for more updates

$3.7B Telecom IPO in Malaysia - We need not get too pessimistic here...!

Maxis' $3.7 Billion IPO Lures Investors

KUALA LUMPUR, Malaysia -- Maxis Bhd.'s initial public offering of up to $3.7 billion is attracting investor interest because of its sheer size and a promising dividend, despite the company's limited growth potential and lofty valuation.
Malaysia's leading mobile phone operator by subscribers is seeking to relist after a two-year absence, in what will be Southeast Asia's largest-ever IPO. It will begin trading on the Malaysian stock exchange on Nov. 19, entering the market without its high-growth overseas operations.

he company is on a much stronger footing now, having grown its earnings 21% year-to-year in 2008 and expecting 16% growth this year, some investors question whether Maxis deserves the same valuation it had before it stripped off its prized assets in India and Indonesia.

Maxis will have a market value of 39 billion ringgit ($11.5 billion), the same as when it was taken private and delisted two years ago, making it one of the top five companies by market value on the Malaysian exchange once it relists.

Its existing shareholders are offering to sell 2.25 billion shares, or 30% the company's capital at an indicative price of 5.20 ringgit, in part to raise funds to finance overseas operations which include unlisted Indian mobile phone operator Aircel and Indonesia's PT Natrindo Telepon Seluler.

Malaysian billionaire Ananda Krishnan and Saudi Telecom Co., who currently own 100% of Maxis through Maxis Communications Bhd., will see their combined stake in the company fall to 70% after the IPO.

So far, the institutional portion is close to three times subscribed, while retail subscriptions that closed Thursday have been about 2.5 times subscribed, bankers familiar with the deal said. The final price will be set after a book-building for the institutional tranche closes Monday.

The limited size of the institutional tranche and Maxis' profile as a stock market heavyweight should guarantee an IPO price near the upper end of the company guidance of 4.80 ringgit to 5.50 ringgit a share, fund managers said.

Mutual-fund giant Fidelity Investments, Malaysia's state-owned Employees Provident Fund and two other state-owned funds have committed to buy 28% of the IPO.

An additional 38% offered to ethnic Malay investors has also been fully taken up, said a banker familiar with the deal. This leaves only 34% of the total offering up for grabs by local and foreign funds.
In its IPO prospectus, the company said it will pay out 75% of its net profit as dividend.
MIMB Investment Research analyst Mohd Nazri Khan said the removal of overseas operations from the IPO profile will make Maxis "a pure defensive dividend play instead of [a] long-term growth play."
Write to Elffie Chew at elffie.chew@dowjones.com

After call charges, SMS rates may be next to tumble :TNN

Shalini Singh, TNN 5 November 2009, 04:45am IST

NEW DELHI: Paying 50 paise to Re 1 per SMS, depending on your package? Well, the cost to your mobile service provider of delivering your message
to another mobile network is less than 1 paisa. That's because an average SMS consists of 1KB data, which takes a fraction of a second for transportation and termination.

This revelation not only belies claims that India has among the lowest telecom tariffs in the world, it could also set the stage for SMS rates to fall sharply. Voice calls are already being offered at 1 paisa per second. As new entrants flood into the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian mobile services industry.

SMS and other value-added services form 10% of the Indian telecom industry's annual Rs 1 lakh crore-plus revenues. The current regime followed by telecom operators is `bill and keep'. This means your operator keeps the entire amount that he bills you for the SMS and pays nothing to the network on which the SMS is sent. This is for two reasons. First, the proportion of traffic across networks is roughly equal, and second, the cost of termination is negligible.

Trai has so far refused to regulate SMS tariffs along with some other tariffs under what is known as forbearance. Forbearance is usually adopted by regulators when they believe that competitive markets are working and tariffs reflect true costs.

As it turns out, the true cost of sending an SMS would never have come to light if new entrants had not been forced to sign interconnection agreements with existing operators at a price that is far higher than the actual cost.
Several potential new entrants told TOI this points to a clear need for immediate regulatory intervention. If the price of sending an SMS reflects true costs, it should fall to no more than a few paise, they point out.

While telecom minister A Raja has been talking about reducing telecom tariffs by bringing in new competition, it is ironic that factors driving telecom tariffs are coming to light due to infighting between existing operators and due to lack of pro-active regulation.

Bejon Misra, chairman, CCEA or Cell for Consumer Education & Advocacy told TOI, "Recent developments have shown that India's claim of having the world's lowest tariffs is not true. Trai must promptly intervene to prevent cartelisation by incumbents aimed at defeating the interests of consumers by preventing cost-based tariffs."

Predictably, the Cellular Operators Association of India (COAI) has a different view. Speaking to TOI, its acting director general T R Dua said, "Trai has followed forbearance and that should remain its policy."
Several incumbents refused to comment on the true costs of terminating an SMS but admitted to the existence of a big margin.

Stein-Erik Vellan, MD of Unitech Wireless, told ToI, "The lack of cost-based Interconnection Usage Charge (IUC) is perhaps the most significant anti-competitive practice that is hindering free and fair competition. It needs to be overhauled. The regulator made an exception to its policy of forbearance in the spirit of fair play when it intervened earlier to reduce IUC charges for voice calls from 30 paise to 20 paise. Trai must undertake a similar regulatory intervention to create a level playing field in the industry". Unitech Wireless may be among the first new entrants to launch service in December.

As more new entrants prepare for launch, Trai may have no choice left but to intervene. A senior Trai official admitted to TOI that the last review in March had not included a new tariff policy for SMS. "However, new operators have to survive and flourish so we will need to intervene if they complain to ensure a level playing field," he said.

Experts and consumer activists, however, argue that given Trai's own cost data from its IUC regulation of August 2006 vintage, it need not wait for complaints but should act decisively and immediately.

Sistema far behind in the incremental numbers......

Nov 4 (Reuters) - Indian mobile operators signed up 15
million users in September to have a total of 471.73 million,
data from the Telecom Regulatory Authority of India showed.

In 2009, the country's mobile subscriber base has increased
at an average of about 14 million users a month.

Sixth-ranked operator Tata Teleservices [TATASL.UL], 26
percent owned by Japan's NTT DoCoMo, led the additions
by signing up 4 million users in September.

Following are the additions by mobile operators and their
total subscriber base.
 LEADING COMPANIES:
 COMPANY                 ADDITIONS (MLN)     TOTAL USERS (MLN)
---------------------------------------------------------------
 Bharti Airtel                2.51                110.51
 Reliance Comm                2.00                 86.12
 Vodafone Essar               1.97                 82.85
 Bharat Sanchar Nigam Ltd     1.45                 58.76
 Idea Cellular                1.40                 51.45
 Tata Teleservices            4.00                 46.80
 Aircel                       1.31                 25.73
Others  :

Loop Telecom                 77,641                2.50
Sistema Shyam Teleservices  228,407                1.96
HFCL Infotel                   -634                0.38
 --------------------------------------------------------------

Note: Wireless tele-density, that is mobile connections per
every 100 people, was at 40.31 at the end of September, the
regulator said.

Wireline subscriber base declined to 37.31 million in
September from 37.33 million in August.

Including fixed-line phones, India had 509.03 million
phones at the end of September, or tele-density of 43.50.
 (Reporting by Devidutta Tripathy in NEW DELHI)

Mkt gurus, India Inc differ on road ahead for telecom : CNBC-TV18

Telecom stocks have been in the doldrums for the past three weeks. Tata-DoCoMo fired the first salvo with its per second billing tariff plan. This was followed by other operators, the latest being Bharti and Reliance Communications which have joined the fray recently. This sent shivers through the market which saw margins, already compressed by the entry of new players, getting further compressed. 

The Central Bureau of Investigation’s (CBI) probe into the alleged 2G spectrum allocation scam has also fuelled the selling frenzy. As a fallout of the CBI probe, work on allocation of spectrum to all existing operators has been stopped by the Department of Telecom.

Telcos have also posted disappointing Q2 numbers. The quarter gone by also saw average revenue per user and minutes of usage falling because of the dual SIM phenomena. Subscribers are opting for a second SIM card to benefit from discounts.

In this scenario, a further fall in tariffs will only lead to lower margins and further de-rating. However, Akhil Gupta, Joint MD, Bharti Enterprises, says irrational pricing is not new to the telecom industry.

Even Sanjeev Aga, MD, Idea Cellular, is not too perturbed by the short-term competitive pressures or the correction in the company's share price. He says the aggressive pricing is due to desperation from overcapacity. "Prices will fall further on desperation, overcapacity." Aga feels capacity utilisation, spectrum efficiencies will be key going forward. He does not rule out margin compression for the next few quarters. According to him, only a handful of telecom companies will survive in the long-term. "We expect consolidation in the telecom industry. We expect a game changing event in telecom by June 2010."

What should investors watch out for?

Shubham Majumder of Macquarie Research cites three factors which could lead to further scaling down of earnings per share estimates going forward. "One would be per second billing. The other is mobile number portability. You would start to see pressure coming through on the post-paid segment of the business while profitability remains very high on the international and national long distance roaming. Third would be pressures coming on the text and data side of the business. This tariff action is limited to the prepaid segment which is the Rs 100–200 ARPU bracket. However, when you see action move to the Rs 400–500–800 ARPU customer, then you really need to worry for players like Bharti and Vodafone because they are basically honouring a majority of the high ARPU and high value market."

Sanjay Chawla of Anand Rathi Securities says the market is looking for clarity on what is the impact of the recent tariff cuts on margins and earnings. "We will come to know that only in the December quarter results. Secondly, the market wants to see evidence of tariffs bottoming out."

Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, expects horrifying numbers and sharp margin erosion from the sector going forward. "More than the revenue, the real stark thing will be the margin erosion. It is largely a fixed cost business and any decline in revenue straight away tells on your margins. The largest company would have an EBITDA of about 20 paise. So, if your revenue falls by 15 paise, then you lose about 60-70% of EBITDA."

How should you trade telecom now?

Investment Analyst R Balakrishnan does not understand why investors are so disappointed. "The war in tariffs has been going on over the last quarter. Every new addition is going to bring down the average revenue per user (ARPU). Now, you are seeing handsets, connections getting doled out free because everybody is chasing the number game so that they can get more spectrum. This is a time when telecom companies are deliberately sacrificing profits for a bigger gain. If you look at it in that perspective and take a view two years down the road, the sector is still very healthy. The licences are still coming very cheap by international standards. So it’s a win-win game for them."

Dipan Mehta, Member, BSE and NSE, and Balakrishnan feel investors should buy telecom on dips and play it for the long-term.

To bolster his recommendation, Mehta states that telecom is a difficult business with volatility in quarterly earnings. "Although there is good long-term visibility, in the short-term there are always issues of project delays and even operating profit margins. There is quite a bit of variance depending upon the stage of completion of the project. It’s a business which is not secular in every quarter. This is a reality which investors have not priced or built into their expectations."

Mehta feels investors should enter at certain levels and price points. "Although the results by and large have been below street expectations, the order book certainly seems to be gathering momentum." Seconding Mehta, Balakrishnan says any sell-off should be used as a buying opportunity.

However, Technical Analyst Mitesh Thacker and Chawla do not share Mehta and Balakrishnan's optimism on the sector. Thacker does not wish to take a contra call. "The long-term charts are extremely weak for the entire sector. Till these stocks don't see some kind of base building happening, I don’t think prices are going to go up quite significantly. This sector remains an avoid as far as long side trading is concerned. I am not comfortable on the short side as it is oversold. Probably, we need to take a step aside, give the stock prices some time to consolidate, and tell you which direction they are ready to move again."

Chawla says the correction is closer to the end now in terms of price damage, but it is the time correction that is likely to be extended. "That may well last for another three-six months. The Telenor launch is around the corner and DoCoMo is still entering new circles. Number portability is also about to come in plus there is the 3G overhang. We don’t see the time correction ending until the Q1 results are out. Until April next year, we don’t see stocks doing much. But we see very limited downside in terms of absolute price correction for stocks from current levels."

Manishi Raychaudhuri, MD and Head-Research, BNP Paribas Securities, is neutral on the sector. “This sector’s fundamentals have been harmed very badly by the competitive intensity. At present, the only stock that we have in our portfolio is Bharti.”

Even Investment Advisor Sharmila Joshi says the growth seen during the hay days is over. "Even if you see growth, it is going to be far more muted. This sector is not going to go any where in the next 5-6 months at least. "

Stock tips:

Vineet Bhatnagar, MD, MF Global, says smaller players like Idea Cellular do look like a good trading bet for a two day trade or for an intraday trade. "One can trade Idea on the long side with a target of about Rs 65."

But Hemang Jani, Senior Vice-President, Sharekhan, says it makes sense to be with the leader at this point of time. "From that context, we would avoid somebody like an Idea and other players. Bharti would be a relatively better bet. From an investment perspective, Bharti looks definitely attractive at 11 times forward price to earnings."

Chawla does not see Bharti's P/E dipping below 12 times. "If we assume that the revenue per minute will bottom out at 45 paisa per minute, then we get a worst case value of Rs 300. But we also like to look at the stock on a price to earnings basis. We don’t see the P/E ratio dipping below 12 times because this is the ratio at which even a company like China Mobile trades. We don’t see Bharti’s P/E ratio de-rating below that of China Mobile."

Even Raychaudhuri rules out further pain in Bharti. He feels Bharti has the advantage as it operates at a very high capacity utilization. “It does not need to get as competitive in terms of price cutting as its primary competitors are. I think the impact on Bharti would be relatively cushioned. At the present valuations, a large part of the negative influence is already discounted.”

Ambareesh Baliga of Karvy Stock Broking too advises investors to buy Bharti. "The worst in Bharti is already there in the price because billing rates cannot fall below one paisa per second. It cannot go into nano seconds."

However, Joshi feels investors need to see how fundamentals pan out before taking a call on the stock. "We really need to wait for another quarter and see how things shape up in this recent price war, which has now got triggered off recently. Do really minutes of usage increase after that and do they really add more subscribers? Three-four months down the line that question will get answered. If an investor is ready to wait 2-3 years, he can hold on to the stock.”

CDMA hubs to miss next year’s 3G party : ET

CDMA hubs to miss next year’s 3G party 3 Nov 2009, 0342 hrs IST, Joji Thomas Philip, ET Bureau

NEW DELHI: Over 35-million subscribers of Reliance Communications (RCOM), Tata Teleservices and Sistema Shyam (MTS) in Delhi, Mumbai, Maharashtra, Andhra Pradesh, Punjab and Rajasthan may be deprived of third-generation (3G) mobile phone services, with the armed forces turning down a communications ministry demand to release airwaves ahead of the 3G auctions scheduled for mid-January next year. The auctions cannot be held for these regions, as the defence ministry is yet to release CDMA frequencies in the 800 MHz band, said a department of telecom (DoT) official who asked not to be named. DoT has informed service providers that 3G spectrum auctions for CDMA players will not be held in the two metros and four states due to a crunch in airwaves. In all other states, a single slot of 3G spectrum will be auctioned for CDMA operators. Third-generation airwaves allow telcos to offer high-end services such as ultra-fast internet and video conferencing on mobile phones. RCOM and Tata Teleservices did not comment on the likelihood of 3G auctions for CDMA not being held for these areas. Sistema Shyam CEO Vsevolod Rozanov told ET the lack of 3G auctions in these places would deprive CDMA customers of high-end services. “We are in talks with Qualcomm (the technological partner) to see how we can work around this. By increasing the number of cell sites, CDMA operators may be able to provide data services in these regions to their customers,” he added. The two cities, which have a telecom penetration of well over 100%, are considered the most lucrative for telcos. Maharashtra, Andhra Pradesh and Punjab are also rated among regions with high revenue-earning potential. GSM platform to save the day An executive with one CDMA player said the Tatas and RCOM would not be heavily impacted, as they offer services on both GSM and CDMA platforms. “These two operators may base their strategy for providing high-end data services in these regions on the GSM platform. Mobile number portability will allow them to shift their top-end CDMA customers in these regions to the GSM platform,” he said, requesting anonymity. GSM operators will see 3G auctions in all telecom circles, except Rajasthan and the North East. In most circles, four slots of GSM airwaves will be auctioned, except in Delhi and Gujarat where only two private players can be accommodated and in West Bengal, where the auction will be limited to a single private operator. At present, defence forces occupy a bulk of 3G spectrum. Earlier this year, the defence and telecom ministries had signed an MoU, which stipulated that the armed forces will release up to 45 MHz of radio frequencies over a three-year period, of which 25 MHz would be for 3G services. The MoU also added that the defence forces will release two blocks (10 MHz) of 3G airwaves and one block of 2G frequencies immediately while the remaining would be released over a three-year period. But in a recent meeting between the ministries, the defence ministry had said it could not adhere to the time frames mentioned in the MoU as the alternative communications network being built for them by DoT through BSNL & MTNL would be operational only by early 2011.