Telecom stocks on fire

Mumbai, July 25: Telecom stocks led by Reliance Communications (R-Com) soared today as the market reacted to Bharti Airtel’s decision on Friday to raise voice tariffs, signalling an end to a bruising battle that badly crimped industry margins and left no winners.

R-Com leapt almost 15 per cent to close at Rs 107.50, while Bharti Airtel jumped 5.37 per cent, or Rs 22.05, to Rs 433 on the Bombay Stock Exchange.

Investors hoped that the other telecom operators would follow Bharti Airtel’s lead, which could then raise the prospect of a return to profitability.

India’s telecom rates are among the lowest in the world, forcing telecom players to aggressively raise their subscriber base in a desperate effort to squeeze the juice from a volume game.

AV Birla group company Idea Cellular rose nearly 8 per cent, or Rs 6.80, to Rs 92.10.

Last Friday, Bharti had raised its call rates by 20 per cent in six circles. Last month, Tata DoCoMo had raised call rates for new subscribers.

Analysts view these hikes as highly positive for the industry that has seen profits evaporate in the intense heat of competition and a desperate quest for market share. However, some stability in pricing has been witnessed in the past few months.

Observers say Bharti’s move will prompt larger rivals such as R-Com and Vodafone to follow suit.

It is also felt that the cellular companies may increase call rates in other circles as well.

“Bharti’s move for the sector signifies that pricing power is coming back in the hands of incumbents. We believe other operators will follow Bharti’s move,” Naval Seth, telecom analyst at brokerage Emkay, said today.

Rahul Singh and Saurav Anand, analysts at Standard Chartered, said Bharti was likely to monitor traffic behaviour in the predominantly urban markets where tariffs are being tested before extending it.

Market observers say that if the others join Bharti and raise tariffs, the sector could get re-rated.