Scrips of telecom operators Bharti Airtel and Idea Cellular fell significantly on Thursday, with Reliance Industries (RIL) deciding to participate in the spectrum auction starting next month.
?The immediate impact is that of intense competition in auctions. The longer-term impact could be increased competition and higher capex for incumbents,? said Credit Suisse analysts Sunil Tirumalai and Chunky Shah, while downgrading Bharti Airtel to ?neutral? and Idea Cellular to ?underperform?.
RIL already owns a nationwide licence for the high-speed 4G network. The services are yet to be launched by RIL?s subsidiary Reliance Jio Infocomm.
While Bharti lost 4.84% to close at R315.5, Idea Cellular ended the day at R156.05, down 7.25%. This is Bharti?s highest single-day fall since September 3, 2013.
Reliance Communications closed at R121.50, a drop of 4.18%. RIL was almost unchanged at R885.15. The auction, which starts on February 3, would be offering spectrum in two separate frequency bands ? 900 MHz and 1,800 MHz.
?900 MHz could be used for 2G and 3G services. While 1,800 MHz could be used for 3G and 4G services. However, RIL might want to acquire these spectrums as alternatives if the 2,300-Mhz band throws up some challenges,? said Shobhit Khare, telecom analyst, Motilal Oswal Financial Services.
If RIL enters the voice industry, it will bring itself in direct competition with incumbents Bharti Airtel and Idea Cellular. ?RIL?s telecom strategy has been quite an enigma for more than three years now,? added Tirumalai and Shah, citing lower spectrum prices and improving tariffs as reasons for Reliance?s decision to switch from its earlier data-focused strategy.
A section of analysts, however, also feel that entry into the voice industry could be difficult as the market has matured. ?Any new entrant will have to be aggressive on the pricing, which could make the business unviable. The growth in voice industry is slow with volumes growing at 7-8% annually. However, data industry has lot of potential with only 10% of industry revenues generated from data services,? added Khare.
