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Business News/ Industry / Telecom/  Telecom debt to touch 6 trillion

Telecom debt to touch ₹6 trillion

Telecom operators to make upfront spectrum payments of ₹13,400 crore, raise tariffs by 12-15% this year
  • Jio, Airtel and Vi are looking at annual payments of ₹7,887 cr, about ₹4,200 cr and ₹1,800 cr, respectively
  • The highest-ever spend on spectrum auctions has been partly driven by upgradation in technology to 5G and partly by relaxed payment terms, experts said. (Photo: Mint)Premium
    The highest-ever spend on spectrum auctions has been partly driven by upgradation in technology to 5G and partly by relaxed payment terms, experts said. (Photo: Mint)

    NEW DELHI : The telecom industry’s debt levels are set to climb to 6 trillion, from 4.7 trillion currently, with companies having made commitments of more than 1.5 trillion towards spectrum payments plus interest over the next two decades.

    Analysts expect tariffs to go up by 12-15% this year even as carriers incur savings from zero spectrum usage charges on airwaves purchased in the auctions. “Post the auctions, the debt levels of the industry would increase further to around 6 lakh crore as on March 31, 2023, with the addition of the spectrum liabilities," said Ankit Jain, vice-president and sector head at ICRA. He said the auction results exceeded the ratings agency’s estimates and will fetch the government 13,400 crore upfront.

    The annual payments towards spectrum liabilities will be around 19,600 crore each for FY24 and FY25, before increasing to 65,500 crore from FY26 onwards, Jain added.

    Top telecom service providers Reliance Jio, Bharti Airtel and Vodafone Idea are looking at annual payments of 7,887 crore, 3,100-4,200 crore and 1,600-1,800 crore, respectively.

    According to ICICI Securities, Jio’s net debt will rise to over 1.75 trillion post purchase of spectrum, while Airtel’s net debt is expected to rise to about 1.55 trillion, which should reduce by 15,000 crore pending fund infusion from a rights issue and 5,000 crore from a preferential issue to Google. “Thus, underlying net debt will be 1.35 trillion," they said.

    Vodafone Idea, which has the highest net debt of over 1.9 trillion, is expected to see its debt rise to 2.15 trillion. “With aggressive 5G bids, we expect increased impetus from telcos on tariff hikes. We assume 12% tariff hikes in 2022-25 (vs. 16% in 2019-22) that will enable telcos to monetise their spectrum and past network investments," said analysts at Ambit Capital. They added that considering its large and uncertain investment, Jio will be more amenable to tariff hikes, especially given plans for its public listing in 2024.

    “We continue to expect a tariff hike before end of CY22, and view that as the next catalyst for the sector," said analysts at Goldman Sachs.

    “Zero SUC (spectrum usage charge) for spectrum purchased in auctions would result in annual savings of ~ 20-22bn, which would partly offset the impact. We have now assumed 1) a tariff hike of ~15% in our Q4FY23 estimates and 2) lower SUC charge (full impact of savings from FY25)," said Naval Sheth at Emkay India Equity Research in a note.

    Analysts at Nomura Global Equities Research said that with large SUC savings, the net annual outlay for spectrum would be 7,500 crore for the telcos and would require a modest 4% incremental tariff hike on overall subscriber base or a 30% premium for 5G compared to existing 4G plans.

    All carriers have pointed to imminent tariff hikes this year, which will follow the 20-25% increase in tariffs for pre-paid customers with average revenue per user, or Arpu, targets kept anywhere between 200-300 for the industry to be on a sustainable growth path. The third-largest carrier Vodafone Idea has the lowest Arpu among the three while Airtel leads with the highest Arpu levels on an aggregate basis.

    According to Kunal Vora, vice-president at BNP Equities Research, the outgo for carriers would be at least 24-44% less if the savings from spectrum usage charges are applied.

    According to a note to clients by BNP, the yearly outgo towards spectrum liabilities for Jio, Airtel and Vodafone Idea is likely to be around 5,960 crore, 2,165 crore and 949 crore, respectively.

    The highest-ever spend on spectrum auctions has been partly driven by upgradation in technology to 5G and partly by relaxed payment terms, experts said. A 20-year staggered spectrum debt repayment plan at a 7.2% interest rate will ease the burden for the industry for this auction, they added.

    In the spectrum auctions concluded on Monday, Bharti and Jio picked up a significant share of spectrum on offer across key bands in all 22 circles and also to cover up for bandwidth coming up for renewal in 2024. Jio bought 24,740 MHz of airwaves in 700 Mhz, 3.3 Ghz and 26 Ghz bands, while Airtel bought 19,868 MHz in 900 Mhz, 1800 Mhz, 2100 Mhz, 3.3 Ghz and 26 Ghz bands.

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    Gulveen Aulakh
    Gulveen Aulakh is Senior Assistant Editor at Mint, serving dual roles covering the disinvestment landscape out of New Delhi, and the telecom & IT sectors as part of the corporate bureau. She had been tracking several government ministries for the last ten years in her previous stint at The Economic Times. An IIM Calcutta alumnus, Gulveen is fluent in French, a keen learner of new languages and avid foodie.
    Catch all the Industry News, Banking News and Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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    Published: 02 Aug 2022, 11:39 PM IST
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