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Wednesday, May 11, 2016

Idea Cellular Ltd: Buy
CMP: Rs.113.10
Idea’s 5% revenue and 16% Ebitda growth q-o-q were strong resulting in 340bp Ebitda margin improvement which is one of the highest in recent history. 

On the core business, it did well on voice with 4% improvement in prices and 1% in volumes. This is somewhat different to Bharti’s result—but both did well. Data trends are slow and steady—revenue rose 5%, ARPU 1% and 1.7 mn 3G adds growth.

In another significant, much-awaited relief for telecom operators, the Supreme Court on Wednesday struck down compensation policy for call drops levied by the Telecom Regulatory Authority of India. 

The operators had challenged the compensation of Rs 1 for every call drop, limited to a maximum of three such calls per day. Following an adverse judgement against them in the High Court, telcos approached the Supreme Court which stuck it down today, calling the Trai order "arbitrary and unconstitutional" as well as "illegal and not transparent".

"(The) SC has rendered historic judgement today by striking down the Trai s regulation," said Kapil Sibal, who was representing telecom operators in the court.

"SC said the regulation was unreasonable, arbitrary and the procedure followed was not transparent. Government and ministers should not try to be populist and do it in accordance with laws, not outside," he added. 

In October last year, Trai had come out with the regulation which was to come into effect from January 1, mandating operators to give one rupee for every call drop to the user, with a maximum of three per day.

The telcos had termed the regulation as arbitrary and whimsical, contending that providing compensation to consumers amounted to interfering with the companies' tariff structure, which could only be done by an order, and not by any regulation.

Trai had told the high court that consumers have a right to get compensated for call drops and this was different from the quality of service guidelines that cellular service providers have to follow under the licence conditions. However, telcos had argued that even if consumers were facing problems, a regulation without statutory backing cannot be created.

According to analysts, if Trai’s regulation is implemented, it could lead to a decline of seven-eight per cent in the operating income of telecom operators. However, for companies that had a call drop rate of two per cent or below – as was mandated earlier – will see a negative impact of three-four per cent on their operating income.

Interestingly, the new regulation did not allow leeway of two per cent call drops, which means the regulator expects the network to be perfect and telcos to pay for every call drop.

The government has been asking operators to invest in infrastructure to improve the quality of services, while operators say spectrum crunch is a major problem for call drops scenario.

Highlights:
## SC stucks down Trai s regulation for call drops compensation saying it's arbitrary and not transparent.

## In October last year, Trai had mandated telcos to pay subscribers Rs 1 for every call drop, subject to a cap of three call drops a day per user.

## Operators challenged the ruling in Delhi HC in December, 2015 which was dismissed on February 29 Telcos went to SC for a stay on March 3, but got no interim relief, hearing fixed for March 10.

## Telcos have earlier said the outgo from the industry would be nearly Rs 54,000 crore annually, but TRAI debunked these claims and said the payout would be only nearly Rs 800 crore annually.
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