Spectrum auctions to fetch Rs. 60,000-65,000 cr; moderate industry participation: ICRA

The auctions would push up industry debt to Rs 4,70,000 crore from Rs 4,10,000 crore currently, the report noted

India’s largest spectrum auction, which is scheduled to start on September 29, may see a moderate participation from telecom companies, fetching around Rs 60,000-65,000 crore to the exchequer, about one-tenth of the value of the entire spectrum put up for the auction, according to a new report by Icra.

Department of Telecommunications (DoT) will be auctioning 2354.55 MHz spectrum across seven bands — 800 Mhz, 900 Mhz, 1800 Mhz, 2100 Mhz and 2300 Mhz — apart from two new bands, 700 MHz and 2500 MHz. The total value of the spectrum is pegged at Rs 5.67 lakh crore. Of this, more than 70% is from 700 MHz spectrum, which has the base price of Rs 11,485 crore per Mhz across India. The upcoming auctions would further elevate the industry debt level to around Rs 4,70,000 crore from the current level of Rs 4,10,000 crore, the report noted. The participation in the auction, the report said, would also be constrained.

“Majority of the spectrum put to auctions is from the 700 MHz band, where we foresee minimal participation. We expect relatively better participation in the 1800 MHz band, which the telcos are likely to acquire for its 4G potential,” said Harsh Jagnani, VP – Corporate Ratings, ICRA.

Even though 700 MHz band is the most efficient band as far as 4G services are concerned, analysts expect muted participation due to being highly expensive and lack of ecosystem around the band.

The overall auction participation would also be moderate because, compared to the past auctions, telecom companies do not face any spectrum expiry risks this time and would focus on filling the gaps in their spectrum holdings, primarily for data services, the report said.

By the limited financial flexibility of the industry, hampered by increasing debt levels. According to Icra’s estimates, the consolidated debt level of the industry as on March 31, 2016 stood at around Rs. 4,10,000 crore as against around Rs. 2,90,000 crore as in March 2014. The forthcoming auctions would further push up the debt levels.

“The (telecom) companies will go for the spectrum that can be used immediately, as opposed to the spectrum which will be usable after few years,” said Himanshu Kapania, managing director, Idea Cellular during the company’s Q1 result press conference earlier this week.

Even with this modest participation, Jagnani said, post the auctions, the debt levels of the industry are likely to elevate further.

"This would worsen the gross debt/OPBDITA ( Operating Profit before Depreciation,. Interest, Tax and Amortisation) levels of the industry to around 6.3 times from the current levels of 5.7 times,” Jagnani added.

“Post the auctions, based on our estimates of cash inflows in the form of OPBDITA generation and free cash, and our estimates of cash outflows in the form of debt-servicing, capex, and spectrum acquisition, we expect the industry to face a deficit of around Rs. 60,000 crore, thereby requiring additional funding,” he said.