India’s largest three mobile operators will face increased financial pressure if the country’s planned spectrum auction, which could raise as much as $70 billion for the government, goes ahead as scheduled this year, warns Credit Suisse.
The brokerage said the spectrum sale, which will likely be held around March — just a year after the last auction — will damage operators’ returns even if it’s only a partial success, the Economic Times reported.
Last year’s auction of spectrum in four bands raised a record INR1.1 trillion ($17.6 billion). The top three operators spent INR895 billion ($14.3 billion), or 85 per cent of the total, forcing them to raise their already-high debt levels.
Bharti Airtel, Vodafone India and Idea Cellular already face increased competition with the entry of mobile newcomer Reliance Jio, which announced plans to finally introduce nationwide 4G service by March. The operator has delayed the launch as it aims to have 90 per cent population coverage before it rolls out commercial service. It now reportedly has about 70 per cent coverage.
Credit Suisse said the three operators will have no choice but to participate in the auction out of fear of losing out on premium spectrum bands and efforts to fill gaps in their spectrum portfolio to catch up with Jio, which has 20MHz of 2.3GHz spectrum in 22 regions (countrywide) and 5-7MHz of 1.8GHz airwaves in 14 service areas.
The Times quoted the brokerage as saying: “This is likely to be the largest quantum of spectrum to be sold at once, with an estimated value of $60 billion to $70 billion.”
Even if only 15-20 per cent of the spectrum is sold in the auction, operators will have to spend $6 billion to $14 billion, which would be a “financial burden that will lead to an immediate and further reduction in industry returns”, it said in a client note.
The government is likely to auction 4G spectrum in the highly-efficient 700MHz band, which the firm said could account for as much as 70 per cent of the funds generated in the next auction.