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Business News/ Industry / Telecom/  Telcos may have to spend Rs1 trillion at spectrum auction: Crisil
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Telcos may have to spend Rs1 trillion at spectrum auction: Crisil

The government plans to auction over 2,300 MHz of spectrum across seven frequency bands, the highest quantity of airwaves being sold at one go

Photo: MintPremium
Photo: Mint

Mumbai: Indian telecom companies may have to spend 1 trillion to buy spectrum at the forthcoming auction, of which nearly a third will be spent by firms outside government control, ratings company Crisil Ltd said.

The government plans to auction over 2,300 MHz of spectrum across seven frequency bands, the highest quantity of airwaves being sold at one go. Leading private telecom companies expected to bid include Bharti Airtel Ltd, Vodafone India, Idea Cellular Ltd and Reliance Communications Ltd.

“Crisil expects India’s telecom operators to fork out 1 trillion 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," Crisil said in a note on Monday.

In the current fiscal, the outgo towards spectrum acquisition would be 37,000 crore, which is lower than the budgetary estimates of around 56,000 crore, Crisil said.

This will still be a significant outgo for an industry reeling under 4 trillion of debt as of 31 March.

“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," said Ajay Srinivasan, director, Crisil Research.

Reliance Jio is the brand name of Reliance Jio Infocomm Ltd, the telecom business of the Mukesh Ambani-led Reliance Industries Ltd (RIL). It had a limited launch in December 2015, when it started offering services to around 80,000 employees as a way to test its services. A full-fledged launch is expected this financial year.

“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 1 trillion," Srinivasan said.

Crisil said it is expecting bidding in 700 MHz to be extremely selective with firms 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, according to Crisil.

The top three telecom companies, which cumulatively account for three-fourth of the sector’s revenue, 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 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 0.5 trillion to meet their spectrum and network investments over the next two years," added Srinivasan.

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Published: 05 Jul 2016, 02:38 AM IST
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