Top telecom firms may skip bid for 700-MHz spectrum, says Fitch

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Mumbai | Updated: January 30, 2016 1:24:08 AM

Given the high base price that has been recommended by the Telecom Regulatory Authority of India (Trai) for the 700-MHz spectrum and stress on their balance sheets, top telecom players may not bid for the radiowaves in this premium band, says credit rating firm Fitch.

“The top four telcos — Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications — may hesitate to bid for 700-MHz spectrum, given their stretched balance sheets and need to preserve cash in light of impending competition from the entry of Reliance Jio in March-April 2016,” Fitch Ratings said in a statement.

Trai has recommended a record base price of R11,485 crore per MHz for 700 MHz, which is to be among the radiowaves that are to be auctioned in the forthcoming round of bidding. If all the available frequencies get sold at Trai suggested price then it can alone contribute over R4 lakh crore. The total potential revenue of Rs 5.36 lakh crore from the spectrum auction, expected to be held during May-June this year, is more than double of gross revenues of telecom services industry. Telecom service providers had gross revenue of R2.54 lakh crore in 2014-15 financial year.

Trai’s recommendations on the reserve price of a spectrum are subject to approval by government. “India’s telecom regulator recommended a reserve price of R115 billion ($1.7 bn) per MHz for pan-India 700-MHz spectrum. Fitch Ratings believes that efficiency gains from deploying 4G services on 700 MHz will be insufficient to offset the relatively high price,” the statement said.

As such, the price for 700-MHz spectrum could exert further pressure on participating telcos’ balance sheets and cash flow, and limit their ability to invest in capital expenditure over the medium term, it said. “Consequently, the 700-MHz spectrum auction planned in second half of 2016 may not be attractive to telcos, given limited device availability and that telcos possess alternative spectrum to roll out 4G services,” Fitch said.

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