Home >industry >telecom >Spectrum auction to boost consolidation in telecom industry: Fitch

New Delhi: The recent spectrum auction will help in consolidation in the telecom industry and the number of players in the country could come down to six-seven with smaller operators likely to be acquired by the larger ones, Fitch Ratings said on Tuesday.

“The recent Indian telecom spectrum auction will hasten industry consolidation, strengthen tariffs and reduce regulatory risks," Fitch said. It added that telecom industry operators will come down to six/seven from 12 as the bottom six telcos look to exit, lacking sufficient spectrum and financial muscle to remain viable.

“Consolidation will improve operating profitability and cash flow, and return pricing power to the larger operators in the medium term. Meanwhile, debt-funded spectrum costs and M&A will weigh on leverage in the short term," it said.

The Department of Telecom (DoT) has recently concluded the spectrum auction for radiowaves in the 900 MHz and 1800 MHz bands that lasted 10 days and fetched the government 61,162 crore.

“Post-consolidation, six/seven operators will emerge, including the existing top four - Bharti Airtel, Idea Cellular, Vodafone India and Reliance Communications, along with a new entrant - Reliance Industries Limited (RIL). We expect the emergence of a couple more merged entities," Fitch said.

While Vodafone put in bids worth around 19,600 crore, bids by Bharti Airtel stood at 18,530 crore. New entrant Reliance Jio put in bids worth around 11,054 crore and Idea Cellular around 10,400 crore.

The government had put on the block about 385 MHz of radiowaves in the 1800 MHz band, and 46 MHz in the 900 MHz band. Fitch said the top three operators and RIL placed aggressive bids and won 76% of the spectrum offered, paying prices which were 84% and 29% higher than the reserve prices for 900 MHz and 1,800 MHz, respectively.

“Leverage will deteriorate for the winners in the short term, due to the largely debt-funded spectrum costs. However, cash flows for the larger telcos will still be manageable, as these companies have the option to pay spectrum cost in phases - one-third upfront, and the balance over a period of 10 years," it added.

The weaker operators did not participate due to lack of funding options and strained financial position, Fitch said. “Tata Group, Loop Telecom, Sistema India and Videocon are likely to be acquired by larger operators, or actively seek to be acquired, to improve their financial position," it said.

The ratings agency said RIL, with cash and cash equivalents of $15-16 billion, could buy a GSM-based smaller telco to fill its spectrum gap to provide both voice and data services, it said. “It already owns 20 MHz in the 2,300 MHz (4G band), and won 78.8 MHz in the 1,800 MHz spectrum for $1.8 billion in the auction that concluded on February 13, 2014," it added.

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