Spectrum auction: Running out of cash

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Published: January 16, 2015 2:31:39 AM

If something can’t last forever, it won’t. Telcos will bid, and aggressively in next month’s auction...

If something can’t last forever, it won’t. Telcos will bid, and aggressively in next month’s auction, but they’re running out of cash.If something can’t last forever, it won’t. Telcos will bid, and aggressively in next month’s auction, but they’re running out of cash.

If something can’t last forever, it won’t. Telcos will bid, and aggressively in next month’s auction, but they’re running out of cash. Based on rough maths, telcos need to spend around $12-13 billion in interest costs in FY16—once you take into account the amounts they will bid for spectrum in the 700 MHz and 2100 MHz bands. This is roughly double their likely Ebitda in that year.

None of this is to say the better off firms won’t have the balance sheets to be able to borrow the necessary funds. They will. But for this, a few things will have to happen. For one, several firms will go belly up, and even among those left, several will simply not bid for spectrum — this is what happened in earlier rounds also. Second, at an industry level, firms can’t bid with such Ebitda levels, so tariffs have to go up, and sharply.

Spectrum First examines the impact of telecom’s distortionary policies

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