India’s telecom operators to spend Rs 1 lakh crore in spectrum auction: Crisil

NEW DELHI: Ratings agency Crisil expects India’s telecom operators to fork out ~Rs 1 trillion (Rs 1 lakh crore) to buy spectrum at the forthcoming auction -- expected in the next 2-3 months.

"Of this nearly 75% will be spent by private telecom operators. Our view is based on an analysis of circle-wise market position and spectrum holdings of operators, the trends and stupendous growth projected in data usage, and the likely competitive scenario," it said.

In the current fiscal, the outgo towards spectrum acquisition would be ~Rs 370 billion, which is lower than the budgetary estimates of around Rs 560 billion. It will still be a significant outgo for an industry reeling under ~Rs 4 trillion of debt as of March 2016.

The government plans to put on the block over 2,300 MHz of spectrum across 7 frequency bands at the forthcoming auction – the highest quantity of airwaves that’s being sold at one go.

Says Ajay Srinivasan, Director, Crisil Research: “Unlike previous auctions, operators this time do not face business continuity issues. Yet we expect reasonably healthy participation because incumbents will ramp up their 3G and 4G spectrum holdings ahead of Reliance Jio’s entry. Telcos are already facing increased network congestion in circles with high data consumption (mainly metros and Category A circles, which account for ~60% of India’s data traffic), and therefore, augmenting network capacity and spectrum holdings will be critical for maintaining their competitive position. Overall, telcos are expected to fork out ~Rs 1 trillion.”

"We expect bidding in 700 MHz to be extremely selective with players preferring the less pricey 1800 MHz. About half of the spectrum put on the block in 1800 MHz and 2100 MHz, and most of it in 800 MHz and 900 MHz, would be lapped up, while bidding interest in 2300 MHz and 2500 MHz is expected to be limited," it added.

The top 3 telcos, which cumulatively account for three-fourth of the sector revenues, are expected to account for 55-60% of the total spending at the auctions. The aggression of individual operators in bidding will be influenced by their 3G/4G spectrum holdings in key circles and quantum of contiguous spectrum held.

“The large telcos are cumulatively likely to spend ~Rs 1.2 trillion over the course of the current and next fiscal on spectrum payouts as well as network augmentation. With profitability and operational cash flows of the sector projected to come under pressure with the launch of Reliance Jio’s services, the reliance on external funding is set to increase. Our analysis shows they would need external funding of around Rs 0.5 trillion to meet their spectrum and network investments over the next 2 years,” added Srinivasan.