Spectrum auctions will lead to high tariffs, competition: S&P

The ongoing spectrum auctions, which fetched over Rs 60,000 crore on the very first day, are likely to intensify competition among major telecom players, leading to higher tariffs, and will also increase the gap between top operators and smaller ones, says a report.
"We believe the largest three operators -- Bharti Airtel, Vodafone and Idea Cellular -- have manageable leverage and improving market shares, which should enable them to withstand the impact of the auctions outgo," Standard & Poor's credit analyst Abhishek Dangra said in a note today.
The government kicked off radio spectrum auctions yesterday which got off to a good start from a revenue point of view, with bid amounts already crossing Rs 60,000 crore on the very first day.

"The strong collective market share and pricing power of these telcos can allow them to raise tariffs and deleverage. In contrast, smaller ones already have high leverage. We expect the market to remain highly competitive with larger players leading tariff actions. The larger companies have steadily strengthened their market position over the past two years," he said in the note.
Last week market leader Bharti had said that tariff would have to go up after auctions, though the report said that voice tariff is unlikely to go down over the next 12 months.
However, Dangra added that "Competition is likely to intensify in the data segment, with government-owned BSNL announcing sharp price cuts and Reliance Jio likely to enter the market".

These companies have significantly higher average revenue per user (owing to higher tariffs and offering of greater value added services) and have managed to raise their subscriber market share by 100 basis points over the period.
On likely consolidation in the industry, the report said the weaker market positions of smaller companies may limit their ability to match the tariff hikes of their larger peers, for fear of losing market share.