New Delhi: Maintaining a negative outlook on the telecom industry, ratings agency ICRA said in a report issued on Wednesday that declining realizations, long gestation period for data to bear fruit, and high upfront cash flows towards capital expenditure and spectrum are the reasons for pressure on returns.
The industry debt, which was Rs.2,90,000 crore at the end of March 2014, is expected to go up to Rs.4,25,000 crore by March 2017, the agency said.
ICRA estimated companies to spend Rs.45,000 crore towards capex requirement and record a deficit of Rs.47,000 crore. It added this showed that there was a growing need for additional funding.
The high pricing of sub-Ghz (700-900) bands did not just result in inability for companies to bid for the same in the recent auctions, but would also require higher capital expenditure. “Spectrum in supra-2000 MHz requires high capital expenditure for network roll-out—most telcos have spectrum in this category,” ICRA said.
“Lower frequency bands such as 700 MHz provide better coverage and in-building penetration. Because of this, a telco needs lesser number of cell sites and cost of deployment becomes relatively lower. As you move to higher frequency bands such as 2.3 GHz or 2.5 GHz, they offer better capacity but require greater number of cell sites and increase CAPEX several times,” said Amresh Nandan, research director at Gartner Inc.
“Having said that, one must also remember that the higher frequency bands offer better capacity, if not coverage and urban cities need to build on capacity,” Nandan added.
The 700 Mhz band was priced at Rs.11,485 crore for 1 Mhz, making companies liable to pay Rs.57,425 crore for 5 Mhz on a pan-India basis, but none of the telcos bid for it.
A major reason for the debt to rise manifold since 2014 has been increasing deferred spectrum liabilities. The telecom companies contributed Rs.61,162.22 crore in 2014 and Rs.1.10 trillion in 2015 to the exchequer by way of spectrum auctions. The total revenue raised by government in the current auction was Rs.65,789.12 crore. The biggest contributor in the spectrum auction was Vodafone India with Rs.20,279 crore, and the balancesheet is expected to remain stretched despite equity infusion from the parent company.
The consolidated payouts for companies in the current financial year are expected to be Rs.42,000 crore, and annual payouts for the next 10 years are Rs.25,000-32,000 crore.
“ICRA estimates the gross debt/EBITDA (earnings before interest, tax, depreciation and amortization) for the industry to remain elevated at around 5.6 times by the end of FY2017,” the ICRA report said.
Owing to the financial stress in the telecom industry, companies have expressed that they are not willing to witness another round of auctions at least before two years.