Shares in top mobile carriers such as Bharti Airtel and Idea Cellular fell sharply on Thursday on fears that Reliance Jio Infocomm's participation in the upcoming spectrum auction will hurt profitability of telecom companies.
Reliance Jio, a unit of billionaire Mukesh Ambani's Reliance Industries and seven other companies will bid for 2G spectrum starting February 3. Cash-rich Reliance will be able to offer basic mobile phone services along with its yet to be launched 4G service if it wins spectrum, increasing competition in the market that has about a dozen players.
Credit Suisse said Reliance's entry could mean "intense" bidding at the auction, and increase competition in the sector in the longer term. The investment bank downgraded Bharti Airtel to "neutral" and Idea Cellular to "underperform" from "outperform", citing the higher-than-expected bid applications as a "negative surprise".
Goldman Sachs said aggressive bidding in the spectrum auction will open up downside risks for telecom companies such as Bharti Airtel.
"The entry of Reliance Jio and all large GSM incumbents could be a lively affair and we could see some sort of fight for spectrum," Bhavesh Gandhi, an analyst from domestic brokerage IIFL told NDTV.
Eight operators will bid for two separate frequency bands - 1800 MHz and 900 MHz - in the upcoming auction. Bharti Airtel, Vodafone and Reliance Jio are likely to bid for both frequency bands.
Idea Cellular, Telenor, Aircel and Tata Teleservices are likely to bid for 1800 MHz band only, while Anil Ambani-promoted Reliance Communications is likely to bid for 1800 MHz and possibly 900 MHz too.
Bharti Airtel shares ended 4.84 per cent lower at Rs 315.50, while Idea Cellular finished at Rs 156.05, down 7.25 per cent. Shares in RCom ended at Rs 121.50 apiece, down 4.18 per cent from the previous close.
The government hopes to raise at least $1.8 billion (around Rs 11,000 crore) from the sale, crucial to its efforts to rein in the country's budget deficit.
(With inputs from Reuters)