Spectrum fees leave no money in shareholders' pockets

Telecom operators' market cap stagnant over past seven years, while govt earned Rs 2.83 lakh crore of revenue from telcos

The telecom sector may have become a golden goose for the exchequer, but shareholders of telcos made no money from their investments. In the seven years since the 2010 3G spectrum auction, the central government has earned around Rs 2.83 lakh crore worth of non-tax revenues from telecom operators, but the combined market capitalisation of listed firms has been stagnant.

According to data published in the Union Budget since 2009-10, combined revenue from spectrum usage charges, revenue share and spectrum auction was the second largest non-tax revenue in financial year 2015-16 (FY16) after dividends from the Reserve Bank of India. Since FY10, telcos have spent Rs 2.97 lakh crore on spectrum in four auctions, and from 2012 auctions, they were allowed to pay a part of the fees in instalments.

This is proving to be costly for investors.

The country's five listed telecom operators - Bharti Airtel, Idea Cellular, Reliance Communications, Tata Tele Maharashtra and Mahanagar Telephone Nigam - are currently valued at Rs 1.71 lakh crore, down from their combined market capitalisation of around Rs 1.84 lakh crore in March 2010, before the auctions in 2010. The government had collected around Rs 1 lakh crore from these two auctions. In comparison, the benchmark BSE Sensex is up nearly 60 per cent during the period.

The industry's finances have been on a downward trajectory since then. The combined net profit of the five firms declined from Rs 7,787 crore in FY10 to Rs 2,939 crore last financial year. The industry also reported combined losses in FY13.

Analysts blame the financial trouble on high spectrum costs, besides stiff competition in the sector. "There is little chance of operators giving returns to shareholders as long as the government treats the sector like a golden goose. Operators have taken billions of dollars' worth of loans to acquire spectrum, and they are unable to earn enough revenue and profit on them, pushing them into a debt spiral," said Dhananjay Sinha, head-institutional equity, Emkay Global Financial Services.

The total debt for the five companies more than quadrupled during the period from around Rs 45,000 crore at the end of FY10 to Rs 2.08 lakh crore at the end of March this year. The combined interest payment is up around five times from Rs 2,643 crore in FY10 to Rs 14,600 crore in FY16.

In FY10, every Rs 100 worth of the debt in the sector generated in Rs 160 worth of net sales, which is now down to Rs 74, and analysts expect it to fall further accounting for the outgo on the latest spectrum auction.

The analysis is based on the combined finances and market capitalisation of the listed operators.

Industry finances would look worse if numbers from unlisted firms such as Vodafone India, Aircel, Tata Teleservices and Reliance Jio were included. For example, Jio has already invested around Rs 1.2 lakh crore in acquiring spectrum and setting up its network, which is as much as market leader Bharti Airtel's cumulative investment in the past two years, and will start generating revenue only from 2017.