High cost of spectrum following the recent auction is credit negative for telecom operators, as the debt levels will rise further, Moody's Investors Service said today. Telecom operators such as Airtel, Vodafone and Idea committed a total Rs 65,789 crore in the sale of airwaves concluded on October 6. "The resulting high costs for spectrum -- following an auction on October 7 -- is credit negative for India's telecom operators, as the debt levels of their already stretched balance sheets will rise further," the agency said. "In our view, these spectrum wins will weigh on balance sheets and cash flows, as debt levels will rise materially for most operators, including incumbent Bharti Airtel Ltd (Baa3 stable) and larger international groups, such as Vodafone Group Plc (Baa1 stable)." The operators will experience a reduction in their ability to fund further expansion or to absorb the effects of weaker profitability as competition intensifies, Moody's Vice President and Senior Credit Officer Annalisa Di Chiara said in a report. Vodafone's India took home Rs 20,280 crore worth of spectrum. Bharti Airtel bought Rs 14,244 crore, Idea Cellular Rs 12,798 crore and newcomer Reliance Jio spent around Rs 13,672 crore on spectrum buying. More intense competition, in part spurred by Jio's launch, is likely to drive tariffs lower, causing average revenues per user (ARPU) to contract and industry revenue and profitability to fall over the next 12-18 months, meaning that leverage levels could rise, the report said. Bids for the four largest telecom operators aggregated 1157 MHz of spectrum, 31 per cent of the spectrum available for sale across all bands, Moody's report added. However, the most expensive spectrum in 700 mhz band priced at 11,485 crore per Mhz found no takers. "The auction did not attract any bids for the highly expensive 700 MHz band, implying that Reliance Jio Infocomm Limited (unrated) and Reliance Communications Limited (Ba3, review for downgrade) -- which have a spectrum-and- infrastructure sharing agreement -- will remain the only players with access to pan-India spectrum in the sub 1 Ghz band," the report said. As per demand note issued by the Department of Telecom, Jio needs to pay Rs 5,930 crore; Idea Rs 6,399 crore, Vodafone Rs 10,139 crore; Airtel Rs 7,121 crore, Tata Teleservices Rs 2,309 crore, RCom Rs 32.5 crore and Aircel Rs 56 crore as upfront amount by October 20. "Longer term, the spectrum which the operators secure will help them maintain their competitive positions, support their strategies on data growth and enhance cash flow generation.
Their high debt burdens may also pave the way for recapitalisation events and further industry consolidation, which will in turn ultimately benefit those incumbents well positioned in 4G," the report noted.
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