Bharti Airtel - High Court quashes 3G stay order - Edelweiss

A division bench of the Delhi High Court, Thursday, vacated a stay order to the Department of Telecommunications (DoT) notice which had been served on Bharti Airtel (Bharti) for INR3.5bn penalty. The DoT notice had also ordered the discontinuance of Bharti's 3G services in circles where it did not win spectrum in the 2010 auction. We believe, this will have low impact on the operations as currently Bharti has very small base in the overall 3G space. Of this small base, the seven circles under the intra circle roaming (ICR) pact are miniscule. It has 5.2mn subscribers using 3G services. vs overall subscriber base of 193.1mn. We expect Bharti to contest the Delhi High Court decision. Maintain 'BUY' with a target price of INR397.

Case history

Bharti had obtained 3G spectrums in 13 circles viz. Delhi, Mumbai, Andhra Pradesh, Karnataka, Tamil Nadu, Uttar Pradesh (West), Rajasthan, West Bengal, Himachal Pradesh, Bihar, Assam, North East, Jammu & Kashmir in the 2010 auctions. Further in seven circles namely Haryana, Maharashtra, Uttar Pradesh (East), Kolkata, Gujarat, Kerala and Madhya Pradesh it is providing 3G services through ICR pacts with Vodafone and Idea. DoT had earlier sent notices to operators stating the illegality of providing 3G services through ICR pacts and slapped a penalty of INR500mn per circle. Bharti had obtained a stay on this notice which has now been vacated by the Delhi High Court.

Our view: Low impact; maintain 'BUY'

While data business remains a key area for all telecom operators including Bharti, we believe this order will not have much of an impact on operations as currently 3G is too small in the overall context. Bharti currently has just 5.2mn 3G subscribers vs. overall subscriber base of 193.1mn. Further we believe Bharti will contest this order. In case the judgment goes against it, Bharti can either provide 2G or 4G services depending on the licence it holds in these seven circles. Maintain 'BUY/ Sector Outperformer' recommendation / rating on the stock.

Source : Equity Bulls

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