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How cheaper roaming is costlier for telcos
Telecom sector regulator Telecom Regulatory Authority of India (TRAI) recently decided to cut roaming charges for calls and text messages instead of abolishing them completely.
The decision comes as a relief to telecom companies as the government had proposed earlier in the year to completely abolish roaming charges. However, the regulator decided not to make roaming services completely free of charge as it was not "practicable at this juncture". It allowed an option for free mobile roaming only on a payment of a fixed fee.
While the 57% reduction in national roaming charges is good news for mobile service subscribers, it will have some impact on profits of listed telecom companies.
If you own shares in these companies, here are ways how cheaper roaming tariffs affect your stocks:
Profit could be hurt but not significantly:Last year, telecom operators suggested that they earn over 8% of their revenues from roaming services. The TRAI had earlier estimated that telecom companies could lose Rs 1,800-2,200 crore if roaming charges were waived. While the current losses will be less than the estimates, there would be some negative impact. Analysts say that the earnings per share of telecom companies could fall anywhere between 2% and 4%. This is much lower than the 10-20% impact analysts spoke of if the government would have abolished roaming tariff completely. Shares of telecom companies like Bharti Airtel have outperformed the BSE Sensex over the past one week after underperforming for the whole of last year.
Minimal effect on tariffs: The TRAI decision is unlikely to have a significant impact on mobile roaming tariffs, which are already similar to, if not lower than, the ceiling rates defined by the regulator. Only the ceiling tariffs for incoming calls and local SMSs differ from their market tariffs. “The new ceilings are well above the current blended realizations on various types of calls (local/STD outgoing, incoming) and SMSs (local/STD outgoing),” Kotak Securities said in a report. Telcos will now have to offer two tariff plans from July 1 – one with a fixed upfront charge for roaming with local rates, and another without a fee, but higher tariffs for roaming.
Contrarian View: :Reliance Communications, which has been advocating complete abolition of roaming charges, was the only operator that opposed the decision. The Anil Ambani-led company – which earns only a small portion of its revenues from roaming charges, according to a report by the Hindu – disagrees that free roaming would hurt the telcos’ revenues. “Instead, the growth of business would be rewarding for service providers, as has been seen and confirmed from the international experience.” Kotak Securities believes that the roaming premium in India should come down over a period of time. “However, a gradual move down is more practical,” it said in a note.
Rs 38,750 crore
India’s wireless industry gross revenues stood at Rs 38,750 crore in the fourth quarter of the fiscal year gone by, according to data released by TRAI. This is a 3.7% growth from the previous quarter, higher than the 2.8% growth witnessed in the previous quarter. Idea led the market with a 8.9% quarter-on-quarter (QoQ) jump in revenues, while Bharti Airtel’s Q4 revenue jump (1.7%) underperformed the industry growth. However, Airtel remained the leading telecom company with a 29.9% market share, followed by Vodafone (23%), Idea (15.7%) and Tata (8.2%). Reliance came in next at 7.8%.