Spectrum trading positive for larger operators

The move will enable further consolidation in telecom

The approval of spectrum trading norms is a positive for the telecom sector, as it will allow smaller operators to sell their unutilised airwaves, while larger operators will be able to improve their coverage. The move comes a week after the government allowed operators to share spectrum. While telcos were hopeful there would be no fee on spectrum trading, the Cabinet did approve a one per cent trading fee.

The other suggestion the government ignored was to keep the revenue coming from trading activity out of the aggregate gross revenue. Other than the two, the norms were largely in line with analyst expectations. The Street welcomed the decision to liberalise the spectrum norms. Listed stocks Bharti Airtel and Idea Cellular gained two per cent each, as the companies could expand their spectrum holding and improve network quality.

Reliance Communications (Rcom) was up 11.5 per cent on expectation that it would gain from sharing and trading its spectrum with RJio.

The biggest beneficiaries will be smaller operators. Among those able to trade spectrum is Aircel, which has 4G spectrum in nine circles. Analysts say given the life of the licence (20 years), unutilised spectrum not only means upfront costs but also loss of depreciation for the unutilised portion.

If RJio partners with Rcom after the trading norms, the former is expected to get access to contiguous 800 MHz of Rcom on a pan-India basis, say analysts at Bank of America Merrill Lynch. RJio, however, will only have a five to six year window as its 800 MHz spectrum expires in 2021. Rcom will have to move its subscribers to another band.

The actual gains for players would depend on the spectrum band, circle and the numbers of years pending license expiry. In the spectrum auction in March, one MHz of spectrum in 900 MHz, 1800 MHz and 2100 MHz bands went for Rs 434 crore, Rs 102 crore and Rs 144 crore, respectively.

The key worry for the sector is the launch of RJio’s pan-India services. Analysts say the arrival of new competition has forced faster rollout of 4G services and accelerated capex by incumbents  Bharti and Vodafone.

Bharti’s moves to restructure its operations in Africa and non-India markets in South Asia are a pointer to this trend. Investors need to stay cautious on the sector.