KUALA LUMPUR: Axiata Group Bhd shares continued to slip yesterday on heavy trading, but at a smaller quantum, following news that an escalating price war among operators in India could further crimp margins for its Indian associate Idea Cellular Ltd.

Axiata fell three sen to RM3.04 yesterday with 29.4 million shares done, making it the day’s fifth most active counter.

On Tuesday, it shed eight sen or 2.54% to RM3.07 even as stocks of telecommunications companies like Idea, Reliance Communications Ltd and Singapore Telecommunications Ltd’s associate Bharti Airtel Ltd tumbled on the Bombay Stock Exchange after the Telecom Regulatory Authority of India said it was looking to make operators bill customers on a per-second basis instead of multiple-second blocks.

A phone call reportedly lasts about 39 seconds on average in India.

“We take a dim view of this unexpected development as it would probably erode average revenue per user (ARPU). It is, however, consistent with our view that competition is likely to ratchet up in India,” CIMB Research said in a note yesterday.

CIMB retained a ‘neutral’ stance on the regional telco sector and is ‘underweight’ on both Singapore’s and Malaysia’s telco sectors.

“SingTel which derives 18% of its S$3.10 (RM7.55) sum-of-parts-based (SOP) target price from Bharti remains an ‘underperform’. We are still ‘neutral’ on Axiata which derives 8% of its RM3.47 SOP-based target price from Idea,” it said.

CIMB estimates that a 10% reduction in Idea’s target valuation would crimp Axiata’s target price by 0.8%, while SingTel’s SOP-based target price will fall 1.8% with every 10% reduction in Bharti’s valuation.

On Tuesday, Bharti shares fell 10% while Idea lost 8% due to escalating concerns about eroding margins after several operators cut tariffs in recent weeks to up the ante on rivals.

“Despite near rock-bottom tariffs, the competitive intensity shows little signs of dying down. Even if the per-second billing is not legislated by the regulator, we think the industry is gravitating towards it especially considering that the large players — Tata DoCoMo and Vodafone Essar — are introducing it,” CIMB added.

Similarly, ECM Libra Research yesterday retained a ‘hold’ recommendation on Axiata but lowered its target price to RM2.75 from RM2.85 after cutting margins and growth assumptions for Idea “in view of intensifying competition”.

The lowered assumptions resulted in a 2% to 4% reduction in its FY2009-2011 earnings estimate for Axiata.

The price war in India escalated on Monday after India’s second-largest mobile operator, Reliance Communications Ltd, said it will charge a uniform 0.50 rupee (3.7 sen) per minute for local and long-distance calls, to simplify tariffs.

ECM Libra expects Idea to “respond quickly to avoid churn and maintain its growth trajectory, as the next several weeks coincide with Deepavali in mid-October and the wedding season in November and December”.

“Being only the fifth largest among 11 players, Idea may not have the clout to go head-to-head with Reliance in a price war. Reliance has a subscriber base of 84.8 million as at August while having a far superior Ebitda margin of 39.1% in 2QCY09. In comparison, Idea has 50.1 million subscribers and Ebitda margins of only 28.9%. The market leader, Bharti leads with 110.9 million subscribers and Ebitda margins of 40.6%,” the research outfit said.

Tata was the first operator to launch a plan on a per-pulse basis, offering calls at one paisa per second in July. Another operator, Shyam Sistema Teleservices, will introduce per-second billing in Delhi this week and extend that to all circles, The Economic Times of India reported on Wednesday.

 Similarly, Maxis Communications Bhd’s sister company, Aircel Ltd, opted for per-second billing in five circles and is reportedly likely to extend it to Delhi.