Spectrum auction: Leading telcos to gain, says ratings agency

Leading telcos are likely to strengthen their spectrum holding and further move the smaller telcos to periphery, says Ind-Ra, a market analyst and research agency


Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

New Delhi: The ongoing consolidation in the telecom industry is expected to gain momentum with the largest spectrum auction starting 1 October 2016, states an analysis report issued on Tuesday by India Ratings and Research (Ind-Ra).

Ind-Ra, a market analyst and research agency, expects leading telecom companies to strengthen spectrum holding and further moving the smaller telcos to periphery.

Considering Idea Cellular Ltd and Vodafone India’s spectrum holding, the agency expects the duo to be active bidders while Bharti Airtel Ltd to bridge gaps calling the telecom industry leader “the most diversified spectrum holder”.

The report also highlights the financial strength of the telecom companies to mark out participation expectations stating, “the top telcos already have moderate-to-high leverage levels, which will weigh on their participation.”

Idea, reportedly, had the net debt to Ebidta (earnings before interest, depreciation and taxes) ratio in financial year 2016 at 3.25 times, one of the highest in five years.

“Ind-Ra also expects key players to invest in profitable and bigger circles and rationalise spectrum in others and divest non-core assets to free up capital for investment into 4G Long Term Evolution (LTE) infrastructure. Bharti’s financial leverage was 2.4 times in financial year ended March 2016, which is expected to go up in financial year 2017 with the increase in capex (capital expenditure) and margin moderation due to the intensifying competition in the data segment”, the report said adding that Reliance Communications is highly leveraged at 5.6 times in financial year 2016.

On bidding for 700 MHz spectrum band, Ind-Ra states that the pricing of this band is three to four times higher than the 800-900 MHz band but the companies will show interest in 700 Mhz band in circles where its price is lower than that of 800/900 Mhz bands which includes Bihar, Madhya Pradesh, Uttar Pradesh east and west).

Also, the 700 Mhz band could attract bidders in areas where 800/900 Mhz bands have not been put up for sale like Assam, the north-east and Jammu & Kashmir. The sub-Ghz band (frequency lower than 1000 Mhz) is considered most efficient for 4G LTE network owing to its deeper penetration and seamless coverage indoor.

“The 1,800MHz band could generate higher interest as it is an alternative band for 4G and priced cheaper than 700MHz. The 2,500MHz is also a new ecosystem and participation is expected to be muted,” the report added.

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