The raging telecom war between the CDMA operators and the GSM ones recently took to the skies - literally! The guidelines recommended by the Department of Technology's (DoT) technical arm, the Telecom Engineering Centre (TEC), were much stricter than the current spectrum allocation policy in place. The guidelines, in effect, suggested that a much larger subscriber base would be needed for the allocation of additional spectrum. The GSM operators were infuriated at the decision as this would entail much higher operational costs. The operators had another cause to worry as the regulatory bodies had also granted GSM licenses to CDMA oeprators, intensifying the competition further in the GSM space.
The CDMA operators have lambasted the DoT for issuing additional spectrum to the GSM oeprators despite the TEC guidelines. A final decision on the same is expected very soon. Whatever the outcome, one thing remains for sure: A positive decision will rub off quite positively on the concerned segment.
Coming over to the stock market, I'm quite intrigued with the idea of hedging and gaining in the short-term. If I were to benefit from the decision on the spectrum allocation, I would put my money in Airtel (a GSM operator) and Reliance Communications (RCOM; a CDMA operator). A favorabel decision would lead to a surge of Rs. 50 - Rs. 100 in the stock prices of either of these companies.
Both companies have a lot to offer and I expect a sustained enhancement in shareholder value over the course of 2007. Some of the reasons to consider investing in these stocks are listed below:
1) Bharti Airtel: A subscriber base of 51 million customers and the company continues to add 2 million customers every month. Despite the average cost per user continues to decline for all operators, the company has been able to grow, effectively managing its operating expenses and boosting its net profit margin. Additionally, seven international investors, including Temasek and Goldman Sachs, have agreed to buy a 9% stake in Bharti Airtel's tower arm for a total $1 billion. This news has worked well for the stock; expect the stock to trade higher in the next few sessions. Airtel is also planning to launch its $200 million operation in Sri Lanka early next year. I expect all these factors to work in Airtel's favor, with the stock set to achieve a price of Rs. 1300/- in the coming few months.
2) Reliance Communications: Having established itself as a dominant player in the CDMA segment, RCOM is all set to take the GSM segment by storm when the company will launch its GSM operations in 2008. The company is also planning to introduce a net-enabled phone at only Rs. 480/- per handset. This marks a steep discount to the currently available internet browsing phones at a cost of Rs. 1,400/-! The company intends to place an initial order for 12 million handsets. It will target the 600 million rural population and sell around 1 million pieces a year in the rural and semi-urban areas. The company is also looking at roping in the labour ministry that is looking at digitisation of communication technology and making mobile phones affordable to farmers.
Reliance Communications is looking to expand its tower business to take on the mega tower company created by the big three GSM players of the Indian mobile market. For this purpose Anil Ambani's tower company seems to be targeting an unlikely partner, the state owned telecom giant Bharat Sanchar Nigam Limited (BSNL). The company had earlier invited bids from private players for taking towers on rent but this venture will be different as towers will be shared on a reciprocal basis. Reliance tower infrastructure limited has about 17,000 towers while BSNL has about 36,000 towers putting their total tower strength at 53,000 towers. Both of them are not very far from the 70,000 towers under Indus tower, the joint venture tower company of Bharti Airtel, Vodafone and Idea. All these factors combined should push the share price of RCOM in the Rs. 850 - Rs. 900 range!
I advise investment in both these stocks in order to benefir from the boom in the telecom industry which we are likely to witness in 2008! Wishing you all a Happy New Year! Play safe and party hard!!
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