Telecoms to spend Rs 1 lakh cr in spectrum auction, says Crisil

Ratings agency Crisil said India’s telecom operators will have to shell out Rs 1 lakh crore or nearly $15 billion to buy spectrum in the forthcoming auction expected in the next 2-3 months.

The forecast indicates that India government will miss its target of $83 billion.

Incidentally, HSBC recently said Indian telecoms will be buying spectrum worth $12 billion or around 81,000 crore during the next round of spectrum auction. The Government is yet to decide the time frame for the next round of spectrum auction. According to media reports, India is targeting around $83 billion by selling spectrum to telecom operators in India.

Bharti Airtel, Idea Cellular, Vodafone India, Reliance Communications, Tata Teleservices, Aircel, Reliance Jio Infocomm and Telenor are the private telecom operators in India.

“Unlike previous spectrum auctions, telecom operators this time do not face business continuity issues. We expect reasonably healthy participation because incumbents will ramp up their 3G and 4G spectrum holdings ahead of Reliance Jio Infocomm’s entry,” said Crisil Research Director Ajay Srinivasan.

Augmenting telecom network capacity and spectrum holdings will be critical for maintaining telecom companies competitive position, said Crisil.

Crisil arrived at this figure by analysing circle-wise market position and spectrum holdings of operators, trends and the excellent growth predicted in data usage along with the likely competitive scenario.

Of the estimated Rs 1 lakh crore expenditure, private telecom operators are slated to account for 75 percent. Two public sector telecom companies are BSNL and MTNL.

The India government plans to put on the block over 2,300 MHz of spectrum across seven frequency bands at the forthcoming auction – the highest quantity of airwaves that’s being sold at one go.

Participating in spectrum auction will be healthy as major telecom companies are experiencing network congestion in circles with high data consumption.

The ratings agency noted that large players would need external funding of nearly Rs 50,000 crore to meet their spectrum and network investments in the next two years.

Meanwhile, HSBC Global Research said that proceeds from spectrum auction are likely to top no more than $12 billion, falling way short of the government’s target, as few companies have the money to justify the costs involved with varying demand for bands on offer.

The government plans to raise $83 billion from the spectrum auctions, implying 2.8 times of present sector revenues from a sector with an average net/debt earnings before interest, taxes, and amortization ratio of four times.

More than 2,300 MHz of airwaves will be on the block for telecom operators in seven bands — 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz. Based on their pan-India reserve price, the mop-up can be as much as $83 billion against $17 billion the last time.

In global mobile markets, spectrum auctions are aimed at assisting telecom network operators to augment their network capacity and improve quality of services (QoS). Since India government is considering spectrum auction as a major resource to make money to meet budget obligations, Indian telecom industry is feeling the need for support system to come out of debt burden.