The Idea-Vodafone combine will benefit the most among established players from the government's decision to allow a longer tenure to telcos to pay for spectrum bought in the auction, a Deutsche Bank report said today.
In its latest report on the relief package for telcos cleared by the Union Cabinet last evening, Deutsche Bank said: "Idea/Vodafone mergeco benefits the most among the larger players as the extension of tenor would lead to 30 per cent lower annual instalment on spectrum for the mergeco which has the highest leverage among the larger players."
The government, last evening, offered some relief to financially-stressed telecom sector, allowing telcos to pay for spectrum over 16 years instead of 10 years and also permitted them to hold more airwaves.
It has relaxed caps on holding spectrum -- a move that will help ongoing mergers like that of Vodafone and Idea as the combined entity would have breached the current limits in certain circles or telecom zones.
"Further, the mergeco was exceeding the older spectrum cap in a few key markets and hence the enhanced cap allows the mergco to retain all its spectrum," Deutsche Bank report said.
It noted that during the last three auctions, the government had allowed the payment of spectrum bids as a combination of upfront amount (25 to 33 per cent of bid) with the balance permitted via 10 annual instalments after a a two year moratorium.
The new policy extends the instalments to 16 years.
"Idea/Vodafone mergecos annual instalment stands at around Rs 160 billion (Rs 16,000 crore) compared to a current annualised EBITDA of Rs 100 billion (Rs 10,000 crore). For Bharti, the instalment and annualised EBITDA for India operations stand at around Rs 90 billion (Rs 9,000 crore) and Rs 230 billion (Rs 23,000 crore), respectively," the report said.
Newcomer Reliance Jios annual instalment stands at around Rs 45 billion (Rs 4,500 crore), it noted.
Morgan Stanley in a research note said that decision to give more time to telcos to pay for the spectrum they have bought, will provide some relief to the free cash flows of the operators in the near term.
"Airtel's annual spectrum payments would reduce by Rs 14-17 billion (Rs 1,400-1,700 crore), about 20 per cent over FY2019/20. We see about 15 per cent downside risk to the government's FY2019 budgeted revenue estimates from the sector," Morgan Stanley said.
"Idea and Vodafone, as per earlier regulations, had 45.4 MHz (2 x 22.7 MHz) of excess spectrum across all service areas put together (2.5 per cent of total spectrum), which they would have to surrender given the previous governments merger and acquisition guidelines," Goldman Sachs said.
The excess spectrum was in the bands of 900 MHz and 2500 MHz, and worth about USD 800 million at current market prices.
With the increase in spectrum caps, such spectrum can now be retained by Idea, it added.
The Cabinet allowed companies to hold up to 35 per cent of all the available spectrum or airwave in a circle or telecom zone. The present limit for such holding is 25 per cent.
It also removed the current intra-band cap. Instead, an operator will be allowed to hold no more than 50 per cent of the total available spectrum in sub-1 GigaHertz bands of 700 MegaHertz, 800 MHz and 900 MHz.
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