100% FDI in telecom to spur interest in upcoming auctions: BofA

Government's decision to fully open the cash-starved telecom sector is expected to renew interest from foreign players in the upcoming spectrum auctions, global financial major Bank of America Merrill Lynch says in a report.

 

Last week, the government permitted 100% foreign direct investment in telecom, versus the 74% ownership cap earlier.

 

"The policy initiative offers fresh hope of capital availability for an industry whose indebtedness is steep and equity-options were hitherto constrained by ownership complications," the Bank of America Merrill Lynch (BofA-ML) report said.

 

Moreover after two failed spectrum auctions in last 12 months, "the 100% FDI move offers hope of renewed interest from foreign majors in upcoming spectrum auctions," the report added.

 

In November 2012 and March 2013, the government had put on auction more than half of the spectrum that was freed after the Supreme Court in February last year cancelled 122 mobile permits issued by the then Telecom Minister A Raja in 2008.

 

The auctions got tepid response from operators and fetched the government a fraction of the sum that was projected.

 

According to BofA-ML, 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.

 

"We expect the government to address concerns over steep reserve prices for spectrum - auctions and caps on spectrum ownership," the report said.

 

On July 11, telecom regulator TRAI said it had received reference from DoT seeking recommendation on spectrum price for third round of auctions and would start consultation process shortly.

 

In terms of companies, Bharti and Idea which already have large foreign partners (SingTel and Axiata) and are less likely to be M&A targets, the report said.

 

Reliance Communications has the highest leverage, besides RCom does not have any strategic foreign partner so far, it added.

 

As per the Department of Industrial Policy and Promotion (DIPP) Foreign Direct Investment in India's telecom sector plunged to $93 million in the April 2012-January 2013 period.