Home
Telecom
Telecom Features
Spectrum Auction: Operators Stare at Costly Victory as Sale Ends

Spectrum Auction: Operators Stare at Costly Victory as Sale Ends

By Reuters | Updated: 18 March 2015 18:27 IST

Cellphone operators are snatching up precious bandwidth in a government sale, paying top dollar for spectrum to roll out high-speed coverage across India. The fear among investors is that the companies' balance sheets may now be under pressure.

The government had raised a record 1.07 trillion rupees ($17.07 billion, roughly Rs. 1,07,080 crores) by the end of bidding on Tuesday in an auction that began on March 4. That's almost a third more than what the government had forecast for the entire duration of the auction, which is set to end this week. Analysts estimate most of the bids were from the country's biggest players.

(Also see: Spectrum Auction Bids Reach Rs. 1,07,000 Crores at End of Day 12)

For the government, the money raised will help plug the fiscal deficit. For India's wireless carriers, the auction is the only way to renew expiring 20-year leases and build the extra capacity needed ahead of an anticipated surge in mobile data consumption as more Indians use mobile phones to go online.

But whether the carriers, including Bharti Airtel and Idea Cellular Ltd, can recoup the huge sums of money spent on bandwidth will depend on the moves of Reliance Industries, controlled by billionaire Mukesh Ambani. The entry of the deep-pocketed conglomerate is expected to heighten competition and keep a lid on tariffs in an already cut-throat market.

"The point is that the operators have no choice but to bid to retain spectrum," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance. "My concern is whether the companies have got pricing power (to repay the debt incurred) or not."

Fierce bidding in the premium 900MHz band in particular, where most of the top companies see some licenses expiring this year, is set to prove a heavy cost for wireless carriers, already among the most leveraged among Asian rivals.

Idea, for instance, is expected to hold on to 900 MHz spectrum in nine regions which account for 72 percent of its revenue. But analysts estimate that to renew all its licenses it will have to spend close to 300 billion rupees ($4.8 billion, roughly Rs. 30,110 crores).

The company's net debt stood at $1.77 billion at end 2014 and is expected to rise to about $3.08 billion (roughly Rs. 19,320 crores) in the year ending in March 2016, according to Thomson Reuters data.

The mobile carriers participating in the auction are not allowed to speak to the media during the sale.

Among the companies in the auction are the India unit of Vodafone Group PLC and Reliance Communications Ltd, controlled by Mukesh Ambani's brother Anil. Final allocations will be confirmed at a later date.

"It's going to be very difficult for companies to make any dramatic changes in tariffs, because the fact is that companies face a very competitive market," said Mahesh Uppal, director of telecom consultancy firm Com First.

Shares in Idea and Bharti have climbed 14.6 percent and 10.7 percent, respectively, since the auctions started, as investors bet that short-term pain to hold on to key licenses will mean long-term gain.

"Maybe their debt levels will be high for two years, but beyond (that) we start to see them stabilising, once the revenue starts to grow," said an industry consultant who is advising one of the bidding companies.

He said companies could see "significantly" more data revenues after 2017. "Prices will go down but the usage and adoption will go up substantially," he said.

Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.