Idea Cellular remains strong despite Indian regulatory issue

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KUCHING: Idea Cellular, Axiata Group Bhd’s (Axiata) associate in India sees quarter-on-quarter (q-o-q) increase in revenue for its fourth quarter financial year 2012 (4QFY12) despite facing regulatory issues in the industry.

According to a research report by OSK Research Sdn Bhd (OSK Research), Idea Cellular felt the impact from regulatory issues as outlined during its conference call following the release of its 4QFY12 results on April 27.

To recap on the regulatory issues, the Telecom Regulatory of India (TRAI) had proposed a pan-Indian base price of 36.2 billion rupees (US$675 million) for each megaHertz (MHz) of the new 1,800 2G licences to be issued as part of the re-farming of the earlier cancelled licences.

The telco said it had 2.6 million active 3G subscribers as at end-March. However, 3G revenue contribution was still insignificant as 3G users accounted for less than three per cent of its total base.

Idea’s stable average revenue per minute (ARPM) of 0.42 Indonesian rupees showed relatively stable competition in the market over the past few quarters.

OSK Research noted that the spectrum price represented 10 times the reserve price set in 2008 and five times the price for 3G licences auctioned in 2010.

Assuming Idea bids for 5MHz of the spectrum that it lost in the nince operational circles, it would have to fork out a staggering 46 billion rupees (US$0.9 billion).

OSK Research added that TRAI’s proposals had received widespread criticisms from mobile operators, including Bharti and Vodafone which had protested in writing.

In a statement, the GSM Association (GSMA) said such a move was actually harmful to the development of the mobile sector as well as undermines any accompanying socio-economic benefits.

The research firm viewed the proposals as regressive, with the potential to trigger a further outflow of foreign investments, coming on the heels of the controversial cancellation of the 2G licences in February.

It expect TRAI, bowing to pressure, to review its proposals in due course.

While the negative newsflow out of India was negative for sentiment on the stock, Idea Cellular contributes less than 10 per cent of Axiata’s core earnings and only six per cent of the research firm’s sum of parts (SOP), on which it had earlier tagged a 20 per cent discount to factor in regulatory risks in India.

Due to such factors, OSK Research pegged a fair value of RM5.45 per share for Axiata.