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Telecom Firms' Debt Levels Likely to Rise: Icra

Even as the proposed spectrum auction is expected to generate up to Rs 96,000 crore for the government, the debt levels of telecom firms are likely to go up due to sizeable payouts, rating agency Icra has said.
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Telecom Firms' Debt Levels Likely to Rise: Icra

Mumbai: Even as the proposed spectrum auction is expected to generate up to Rs 96,000 crore for the government, the debt levels of telecom companies are likely to go up due to sizeable payouts, rating agency Icra has said.

Total spectrum payout is expected to be Rs 90,000-96,000 crore and the upfront cash inflow for the government this fiscal year is expected to be at Rs 24,000-26,000 crore, Icra senior vice president Sabyasachi Majumdar has said.

"The auctions in February are primarily triggered by licence expiries in December 2015 and April 2016, and would be a significant event for the industry. The sizeable expected spectrum payouts would elevate the debt levels for the industry," Mr Majumdar said.

He said the way these auctions pan out will set the course for the future of the industry, including competitive intensity, market positioning and financial health of the telecom firms, pricing levels and product offerings, among others.

According to the rating agency, the spectrum auctions would be centered on 900 MHz as the incumbent telcos like Bharti, Vodafone and Idea, who hold sizeable spectrum in this band would be keen to retain their existing spectrum.

"Change in 900 MHz spectrum holding significantly alters the competitive positioning given its relatively higher spectral efficiency and hence there is expected to be aggressive participation in the auction," he said.

The Department of Telecom (DoT) would be auctioning sizeable spectrum across four bands - 800/900/1800/2100 Mhz.

According to Icra, the auction of 900/1800 MHz band is expected to result in a spectrum payout of Rs 65,600 crore for the government.

Three incumbents - Bharti, Vodafone and Idea - are estimated to account for around 90 per cent of the total value of the spectrum sold, Mr Majumdar said.

"The entire spectrum put for sale in 900 MHz band would be sold whereas in 1800 MHz band, some circles are expected to witness muted participation. Further, the final prices in 900 MHz are expected to be higher than the reserve price in most circles whereas the prices in 1800 MHz band are expected to remain in line with the reserve prices," he said.

Mr Majumdar further said that the overall growth momentum witnessed in the telecom industry in the last few quarters continues to persist with the industry reporting steady improvement in both operational and financial metrics.

The key operating metrics primarily - RPM (revenue per minute) and MoU (minutes of use) have exhibited steady and measured growth in the last few quarters. Consequently the financial performance of the telecom firms has also reported steady improvement, he said.

"The data services continue to witness upward trend. The number of data subs has shown healthy growth over last few quarters, accompanied by increased data usage. Moreover the average data realisations have also shown some stability in last few quarters as against declining retaliations in the past," Mr Majumdar added.

He, however, noted that though the recent traction in profitability coupled with deleveraging initiatives has helped the telecom companies record improvement in debt protection metrics, the expected sizeable spectrum payouts are likely to increase the telecom firms' reliance on debt and impact their debt metrics.



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