New telecom policy: Market-based pricing will be encouraged, says IIFL

India is set to unveil a new telecom policy that could lead to consolidation in the fiercely competitive industry and make it more transparent after it was rocked by a scandal that may have cost the government up to Rs 1,76,000 crore in lost revenue.

The new policy, due to be announced at 3 pm today, is expected to include revised rules on the grant and pricing of second-generation radio spectrum, while mergers and acquisition rules for the sector could also be relaxed.

Shares in two of the biggest listed carriers, Bharti Airtel and Idea Cellular, were initially lower on Monday, underperforming the broader market, before turning higher. Reliance Communications shares were up.

In an exclusive interview with CNBC TV-18, GV Giri, analyst at IIFL Institutional Equities said the key takeways from the policy announcement would be whether the government is re-farming spectrum or whether there will be fresh auctions. He added that the market is keenly awaiting the details of the levels of bits and bytes of the policy. " If the policy comes out at a level of detail that the market can grip, it makes sense," said Giri.

Details of refarming key to market:

Re-farming means the government takes back 900 mhz spectrum and gives the telcos 1,800 mhz. However, if this happens rural voice services, where population density environment is low, will become very expensive for telecom companies. Moreover, the government faces another problem. " All the 900 mhz will not expire at the same time and it will take at least three to four years for 2 slots of 900mhz to get fully returned to the government."

Hence it is extremely impractical for the government to allow service disruption or such a long time.

Market-based mechanism for pricing spectrum will be encouraged by markets

Markets would prefer regular or fresh auctions for pricing spectrum.This means if more spectrum comes into the market through licence cancellations or through fresh supply, then the overall cooling of spectrum prices will ensure licence renewal at reasonable rates, said Giri.

Domestic roaming would be about 4-5% of domestic revenues

If roaming is chopped off one instance, earnings of telcos are likely to get impacted. But this too depends on whether companies can raises prices to compensate the loss.

Earnings will be an issue this quarter

Giri said that earnings are likely to be impacted this quarter but the the tariff hike of July and August should play out and will probably be a Q3-Q4 story.

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