Easing of spectrum norms to speed up consolidation, telecos to benefit

Will lower payment outgo to the tune of Rs 500 bn: CRISIL

The easing of spectrum  norms, if approved by the Union Cabinet, is expected to help speed up the consolidation process and will be beneficial to both incumbents and Reliance Jio. The Telecom Regulatory Authority of India (Trai) has recommended that a cap of 50 per cent on spectrum held by telcos within a particular band should be removed. Further, a 25 per cent cap on spectrum in a circle is to be raised to 35 per cent. 

This will mean that the combined entity of Vodafone and Idea need not surrender or sell extra spectrum available with them in the 900-Mhz band in five circles and the 2,500-Mhz band in two circles. Further, smaller players will be able to consolidate their position in only profit earnings circles and exit the non-viable circles by selling spectrum to better players. Aircel, which has planned to shut down operations in six circles by the end of this month, will benefit as it can now sell the spectrum in those circles.

Instead of a specific spectrum cap, the regulator has asked for 50 per cent cap on the combined holding in the efficient bands of 700 Mhz, 800 Mhz and 900 Mhz. This will help Reliance Jio, which wants to acquire spectrum from Reliance Communi-cations to increase its holdings in the under 1Ghz category (700 Mhz, 800 Mhz and 900 Mhz bands). Harsh Jagnani, sector head and vice-president, Corporate Ratings, ICRA, says the removal of intra-band capping allows for more efficient use of spectrum as it removes the constraint around technology deployment on different bands. 

The sector will also benefit from two other proposals. One, the extension of spectrum payment period from 10 years to 16 years; and two, lowering of interest rate on penalties by two per cent. Hetal Gandhi, director, CRISIL Research, estimates that the extension of spectrum payment period will lower the payment outgo of the industry by around Rs 105 billion in FY19 and by around Rs 500 billion on a cumulative basis until FY22 from FY19. This will help them to better manage cash flows and lower their debt requirements, she adds.

The effective interest rate for telecom operators is about 12 per cent (MCLR plus 400 basis points) and lowering penalty by two per cent will be significant, considering large sums paid by the telecom operators both on account of licence fee and spectrum usage charges.