Crisil ratings, a part of Standard & Poor group, has warned that some of the operators whose licenses have been cancelled by the Supreme Court may shut down rather than buy them back at higher prices. It also said some operators may raise call rates at this juncture, due to the reduced competition.
The Supreme Court on Thursday cancelled 122 telecom licenses in the country, after finding that the process under which they were issued was flawed and illegal. The biggest losers from the action were MTS (Shyam Sistema), Uninor (Unitech-Telenor), Loop Telecom, Etisalat DB and Videocon, which have lost all or nearly all of their licenses.
Among the above, only Uninor and MTS have launched in most of their circles, while Videocon has launched in some states.
Three new operators -- Tata DoCoMo, Reliance GSM and Aircel Cellular -- escaped with no or minor damage from the Supreme Court ruling, while an 'established' operator, Idea Cellular, found its licenses in Tamil Nadu, Kolkata, West Bengal, Orissa, the North East and Jammu & Kashmir scrapped.
For most circles, however, the Court's action will result in the removal of one or two GSM operators (Uninor and Videocon) and a CDMA operator (MTS), while still leaving three new operators (Tata, Reliance, Aircel) in the field.
In addition, Uninor and MTS, which have invested large amounts of money in rolling out their services and publicizing them can be expected to bid for the licenses when they are put on auction again in four months. However, the rating agency put Sistema Shyam Teleservices Ltd (SSTL) under a ratings watch.
"CRISIL is in discussions with SSTL’s management, and will remove the ratings from watch and take appropriate rating action once it gains clarity on SSTL’s future course of action, with regard to fresh applications for licences, and related funding plans," it pointed out.
The Supreme Court action, however, is likely to lead to a hike in tariffs by more established operators, the agency said. Even if the new operators recapture their licenses and spectra, "operators who acquire licences under the new process are likely to raise tariffs to cover the higher licence fees," it noted.
"..competitive intensity in the sector will reduce, leading to improvement in pricing power for the established players. With the number of operators likely to reduce, incumbent operators will be in a better position to hike tariffs," it pointed out.
"Consequently, telecom tariffs will increase significantly, resulting in improved profitability for the current operators. Some operators whose licences have been cancelled may even choose to exit the business in the wake of the SC verdict, either because of deterioration in their business prospects, or limited possibility of securing additional funding," it said in its note.