SingTel – BT

Bharti’s latest woes may be a drag on SingTel

Indian telco may face big fine over cellular licences controversy

Singapore Telecommunications could be weighed down further by its Indian investment as Bharti Airtel is currently mired knee-deep in a controversy which might result in the unsavoury prospect of a billion-dollar government fine.

At the heart of the storm is the Indian government’s allegation that local telcos may have underpaid for a series of second-generation (2G) cellular licences that were issued in 2008, a fiasco which has resulted in the resignation of telecommunications minister Andimuthu Raja.

India’s chief auditor has already indicted the official for undervaluing these licences as he is said to have awarded them to new market entrants based on an outdated policy formulated in 2001.

At the same time, incumbents Bharti, BSNL and Vodafone were reportedly allotted more than their stipulated share of the 2G spectrum without incurring any upfront fees.

According to the Financial Times, the Comptroller and Auditor General of India claims that the bids involving these three operators have cost authorities some US$8 billion in lost revenue.

Citing an unnamed source, the FT further reported that Bharti and Vodafone could be fined more than US$1 billion each as a result of the fiasco. Bharti Airtel is the largest operator in India with a local subscriber base of 143 million.

‘Those who were given more at less will have to pay something back to the government … the exact amount is being worked out but BSNL, Bharti and Vodafone are the ones that benefited the most so they will pay the most,’ an Indian official was quoted as saying.

Besides the three incumbents, the six other operators that are being implicated are Idea Cellular, MTNL, BPL, Aircel, Reliance and Spice.

Some market watchers believe a government charge would hurt some of these new market entrants more than incumbents such as Bharti.

‘We believe some of the recent events in the regulatory environment appear to be negative for new operators as they risk paying heavy fines or surrendering their licences,’ Goldman Sachs said in a recent report on Bharti.

‘We therefore believe the regulatory environment in the next 12-18 months will be more favourable to incumbents than new entrants,’ it added.

Nonetheless, if a huge fine is indeed levied on Bharti, SingTel’s earnings will undoubtedly be further dented by its largest regional investment.

When contacted, SingTel declined comment. Earlier this month, Singapore’s largest operator reported an unexpected 6.7 per cent dip in second-quarter net profit to $892 million.

SingTel, which has a 32 per cent stake in Bharti, was hit by the Indian operator’s African expansion for the second quarter in a row.

The Indian operator acquired Kuwaiti conglomerate Zain’s mobile assets in June this year in a deal valued at US$10.7 billion.

Beyond chipping in its share of the financing costs for the acquisition, SingTel’s earnings were dented by the inclusion of the first full quarter of losses from Bharti’s newly acquired cellular companies in Africa. If these were excluded, SingTel said its net profit would have dipped by only 3 per cent in the second quarter.

SingTel CEO Chua Sock Koong previously said Bharti would need around six months to restructure its operations and profitability should begin to improve by April next year.


 

SingTel – BT

Bharti’s latest woes may be a drag on SingTel

Indian telco may face big fine over cellular licences controversy

Singapore Telecommunications could be weighed down further by its Indian investment as Bharti Airtel is currently mired knee-deep in a controversy which might result in the unsavoury prospect of a billion-dollar government fine.

At the heart of the storm is the Indian government’s allegation that local telcos may have underpaid for a series of second-generation (2G) cellular licences that were issued in 2008, a fiasco which has resulted in the resignation of telecommunications minister Andimuthu Raja.

India’s chief auditor has already indicted the official for undervaluing these licences as he is said to have awarded them to new market entrants based on an outdated policy formulated in 2001.

At the same time, incumbents Bharti, BSNL and Vodafone were reportedly allotted more than their stipulated share of the 2G spectrum without incurring any upfront fees.

According to the Financial Times, the Comptroller and Auditor General of India claims that the bids involving these three operators have cost authorities some US$8 billion in lost revenue.

Citing an unnamed source, the FT further reported that Bharti and Vodafone could be fined more than US$1 billion each as a result of the fiasco. Bharti Airtel is the largest operator in India with a local subscriber base of 143 million.

‘Those who were given more at less will have to pay something back to the government … the exact amount is being worked out but BSNL, Bharti and Vodafone are the ones that benefited the most so they will pay the most,’ an Indian official was quoted as saying.

Besides the three incumbents, the six other operators that are being implicated are Idea Cellular, MTNL, BPL, Aircel, Reliance and Spice.

Some market watchers believe a government charge would hurt some of these new market entrants more than incumbents such as Bharti.

‘We believe some of the recent events in the regulatory environment appear to be negative for new operators as they risk paying heavy fines or surrendering their licences,’ Goldman Sachs said in a recent report on Bharti.

‘We therefore believe the regulatory environment in the next 12-18 months will be more favourable to incumbents than new entrants,’ it added.

Nonetheless, if a huge fine is indeed levied on Bharti, SingTel’s earnings will undoubtedly be further dented by its largest regional investment.

When contacted, SingTel declined comment. Earlier this month, Singapore’s largest operator reported an unexpected 6.7 per cent dip in second-quarter net profit to $892 million.

SingTel, which has a 32 per cent stake in Bharti, was hit by the Indian operator’s African expansion for the second quarter in a row.

The Indian operator acquired Kuwaiti conglomerate Zain’s mobile assets in June this year in a deal valued at US$10.7 billion.

Beyond chipping in its share of the financing costs for the acquisition, SingTel’s earnings were dented by the inclusion of the first full quarter of losses from Bharti’s newly acquired cellular companies in Africa. If these were excluded, SingTel said its net profit would have dipped by only 3 per cent in the second quarter.

SingTel CEO Chua Sock Koong previously said Bharti would need around six months to restructure its operations and profitability should begin to improve by April next year.


 

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