BENGALURU/NEW DELHI (Reuters) - Indian telecom stocks rose on Friday amid hopes that the government would step in to help the ailing sector, a day after two top mobile carriers warned their ability to operate and make profits would depend on relief from the country.
On a conference call with analysts, Vodafone Idea Ltd (VODA.NS) Chief Executive Officer Ravinder Takkar said he saw no conflict in the government’s ability to provide relief to telecoms companies, sending shares up 20% in afternoon trade.
“Given the stress on the sector, it gives the government additional ability to act in the interest of the overall economy,” he added.
The S&P BSE Telecom index .SPBSTLIP jumped as much as 8.6%, with shares of Vodafone rival Bharti Airtel Ltd (BRTI.NS) rising over 8%.
The Supreme Court last month upheld a demand by the telecoms ministry that wireless carriers pay 920 billion rupees ($12.89 billion) in overdue levies and interest within months.
As two of the country’s top three carriers, Vodafone Idea and Bharti Airtel will have to pay a bulk of that money.
“Vodafone closing will be a big negative for international investors at a time when the government is trying to attract more foreign investment,” said Asutosh Mishra, head of research of institutional equities at Ashika Stock Broking.
“The government will have to provide some relief, and stocks are gaining on these expectations.”
CNBC-TV18, citing sources, said the Department of Telecommunications (DoT) was going to begin consultation on “floor prices” for phone calls and data usage, as well as to make suggestions on the quantum of minimum charges to be set.
Ambit Capital analyst Vivekanand Subbaraman said the government had swung into action and it could not afford to let the companies go bust, adding majority of Vodafone Idea’s about 1.02 trillion rupees ($14.30 billion) debt was owed to the government.
Embattled Vodafone Idea, made up of the local unit of Vodafone Group Plc (VOD.L) and billionaire Kumar Mangalam Birla’s Idea Cellular, said on Thursday its “ability to continue as a going concern is dependent on obtaining the relief from the government... and positive outcome of the proposed legal remedy.”
Airtel Chief Executive Officer Gopal Vittal said the company would continue to engage with the government to explore its options.
Telecom providers in India pay the DoT nearly 3%-5% of their adjusted gross revenue (AGR) in usage charges for spectrum or airwaves and 8% of AGR as licence fees.
The DoT and mobile carriers have been at odds over the definition of AGR. These companies argue that AGR should comprise just revenue accrued from core services, while the DoT says AGR should include all revenue.
($1 = 71.3500 Indian rupees)
Writing by Nivedita Bhattacharjee, additional reporting by NR Sethuraman in Bengaluru, Editing by Jane Merriman and Subhranshu Sahu