Given the high base price that has been recommended by telecom regulator Trai for the 700 Mhz spectrum and stress on their balance sheets, top telecom players may not bid for the radiowaves in this premium band, says credit rating firm Fitch. “The top four telcos – Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications – may hesitate to bid for 700MHz spectrum, given their stretched balance sheets and need to preserve cash in light of impending competition from the entry of Reliance Jio in March-April 2016,” Fitch Ratings said in a statement. The Telecom Regulatory Authority of India has recommended a record base price of Rs 11,485 crore per Mhz for 700 Mhz, which is to be among the radiowaves that are to be auctioned in the forthcoming round of bidding. If all the available frequencies get sold at Trai suggested price then it can alone contribute over Rs 4 lakh crore. The total potential revenue of Rs 5.36 lakh crore from the spectrum auction, expected to be held during May-June this year, is more than double of gross revenues of telecom services industry. Telecom service providers had gross revenue of Rs 2.54 lakh crore in 2014-15 financial year. Trai’s recommendations on the reserve price of a spectrum are subject to approval by government. “India’s telecom regulator recommended a reserve price of Rs 115 billion (USD 1.7 bn) per MHz for pan-India 700 MHz spectrum. Fitch Ratings believes that efficiency gains from deploying 4G services on 700 MHz will be insufficient to offset the relatively high price,” the statement said. As such, the price for 700 MHz spectrum could exert further pressure on participating telcos’ balance sheets and cash flow, and limit their ability to invest in capital expenditure over the medium term, it said. “Consequently, the 700 MHz spectrum auction planned in second half of 2016 may not be attractive to telcos, given limited device availability and that telcos possess alternative spectrum to roll out 4G services,” Fitch said. It cited the example of Bharti Airtel which owns about 40 percent of the 900 MHz spectrum among private players and is offering 4G services in 1800 MHz and 2300 MHz. Reliance Jio, after having invested about USD 15 billion on spectrum and networks, has access to the pan-India 800MHz spectrum, it said. “In March 2015, the telcos committed the largest-ever investment of USD 17.7 billion, mainly due to the necessity to retain their expiring spectrum to avoid network disruption. The auction saw aggressive bidding as spectrum offered was limited. We believe that there are far fewer reasons for telcos to invest as much in the 700MHz auction,” Fitch said. The firm said that spectrum sharing and trading guidelines is another reason that auction may not be attractive for telecom players to procure airwaves. “Fitch believes that smaller and weaker telcos will further seek mergers and acquisitions or exit the industry, in light of the high spectrum prices and stretched balance sheets. Videocon India, one of the smaller firms, has agreed to sell its 4G spectrum assets to the third-largest telco, Idea Cellular,” Fitch said. The agency has a negative outlook on Indian telcos for 2016 as it feels Reliance Jio’s entry in the market is likely to provide cheaper and faster data-focused tariff plans which will put pressure on balance sheets of other telecom operators. “Blended monthly average revenue per user could fall by 5-6 percent to around Rs 160 (from Rs 170) due to a decline in data tariffs, which will more than offset the rise in data usage. The top-four telcos’ average operating EBITDA margin will narrow by 100-200 basis points due to competition and greater marketing spend,” Fitch said.
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