Telecom Investors Await Call on 2G Fee

India’s telecom investors are watching and waiting for a key decision regarding a proposed fee on holders of 2G spectrum bandwidth.

AFP/Getty Images A pedestrian Peaks on a mobile phone in Srinagar, India, April 16, 2010.

A. Raja, telecom minister, is meeting the heads of leading telecom companies today. Many industry watchers speculate that a consensus is likely to be reached on the proposed one-time fee for 2G bandwidth that the Telecom Regulatory Authority of India had recommended for telecom companies.

Telecom stocks were active as a result with Bharti Airtel rising 2.0% by early afternoon and Idea Cellular losing 0.2%. Reliance Communications was up 2.7%, while the benchmark Sensex was down 0.5%.

TRAI in May recommended that GSM and CDMA operators with more than 6.2 megahertz and 5 Mhz of 2G bandwidth, respectively, should pay a one-time fee to keep the excess spectrum. It said the fee would be linked to the value of third-generation bandwidth at the government’s recent auction.

The recommendation was met with severe opposition from telecom companies, which already have shelled out huge amounts for the 3G and broadband wireless spectrum auctions recently. TRAI subsequently asked telecom companies for their views by June 15 and said it would consult with other experts too – a process it estimated would be completed by July 15.

“I doubt the fee will be entirely scrapped but perhaps a discount is possible. We are hoping for some kind of decision today,” one Mumbai-based analyst said.

If implemented on TRAI’s earlier recommendation, the fee would hurt players like Bharti and Idea the most, analysts say. The hit is less for Reliance Communications, part of the Anil Dhirubhai Ambani Group, as it owns less than 6.2 MHz of 2G spectrum in all circles except Bihar.

Some analysts say that with the expensive auctions out of the way, the sector may be on track to recovery and that it is likely a good time to buy the stocks.

“We believe that domestic wireless business is stabilizing, and the overhang from 3G and (Broadband Wireless Access) spectrum auctions are now behind us,” Anand Rathi Financial Services said, maintaining a ”Buy” rating on Bharti and Idea.

Others recommend investors take a cautious view, particularly because any disappointment over TRAI’s recommended fee is not priced into the stocks.

“In our view, there remains limited visibility if TRAI recommendations are accepted by the government in its current form. We consider this as a key overhang on Bharti/Idea shares,” Goldman Sachs said in a note Tuesday.