Will foreign telecoms join forthcoming spectrum auction?

Foreign telecoms may show interest in the forthcoming spectrum auction. India’s FDI decision is expected to renew interest from foreign players in the upcoming spectrum auctions, Bank of America Merrill Lynch said.

100 percent foreign direct investment (FDI) will renew foreign telecoms’ interest in the Indian telecom sector that generates about $37 billion in annual gross revenue.

Mobile majors such as China Mobile, China Telecom, Qatar Telecom, MTN, Telefonica, TeliaSonera, Deutsche Telekom, etc. do not have presence in India. But will they join a telecom market which has around 13 telecoms at present. Though Fitch Rating says that FDI will prompt telecoms’ promoters to consolidate, who’ll take interest in consolidating their assets. M&A guidelines will be important for this move.

Presence in India is vital for foreign telecoms which are struggling in Europe. With $1.66 billion revenue in Q1 fiscal 2014, Vodafone India has become its fourth largest business on a telecom service revenue basis for Vodafone Group. ( Vodafone India becomes fourth largest biz on telecom service revenue basis for Group )

Interest in investing in emerging telecom markets will assist foreign telecom giant to improve revenue. For instance, AMAP region — India is part of this — is the second biggest contributor to Vodafone Group service revenue in the first quarter of fiscal 2014.

The opening up of the telecom sector is just a first step and more policy improvements are likely. Further policy improvements especially with regard to spectrum pricing and allocation are needed, said Bank of America Merrill Lynch.

Meanwhile, Fitch Ratings said 100 percent FDI in the telecom sector is set to cheer investors.

Will foreign telecoms join spectrum auction

Fitch Ratings said that the government’s decision to remove the FDI limit in the Indian telecom sector will assist to reduce leverage and strengthen balance sheets in the medium term.

The move could encourage foreign telecom investors – who have previously been put off by FDI rules – to look again at the sector, and allow existing foreign investors to increase their stake in subsidiaries to 100 percent.

Vodafone, Telenor, Maxis and Sistema may benefit from the change, as they are already at the current 74 percent holding limit.

FDI in other telecoms, including Bharti Airtel and Idea Cellular, is well below the current 74 percent limit, so the change is only likely to benefit them in the medium term.

Such telecoms could invite equity-injection from existing or new foreign investors to improve leverage.

Singapore Telecom and Qatar Foundation Endowment own about 32 percent and 5 percent, respectively, in Bharti Airtel, while Malaysia’s Axiata owns about 20 percent of Idea Cellular.

Reliance Communication, which has the weakest balance sheet among the top-four operators, could also benefit from this move.

The move could lead to M&A deals as the industry needs to consolidate further.

“We expect a maximum of six of the current 10 operators will survive in the long term, and that consolidation will occur once the regulator relaxes M&A guidelines further,” Fitch said.

The Indian telecom services industry is facing a debt of over $40 billion. At least 40 percent of telecoms’ debt is denominated in US dollars; and they are suffering from a weak rupee, which has depreciated by over 20 percent in the last two years.

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