India’s new spectrum trading and sharing rules are not only likely to encourage a long-awaited round of consolidation in a market with 12 mobile players, they also have the potential to put downwards pressure on spectrum prices in future auctions, according to Fitch Ratings.
The country’s operators have complained for years that consolidation in the sector has been prevented by inefficient utilisation of spectrum assets by smaller operators and regulatory uncertainty regarding M&A regulations.
The cabinet approved the new spectrum trading regulations on Wednesday.
The top-three operators — Bharti Airtel, Vodafone and Idea Celluar – account for 73 per cent of the industry’s revenue and are expected to consolidate their positions by acquiring spectrum from smaller rivals to de-congest their network and support their fast-growing 3G/4G services. In addition, the opportunity to trade spectrum may curtail excessive bidding in future spectrum auctions, Fitch said.
Indian operators are some of most spectrum-starved operators in Asia Pacific, with frequent complaints that network congestion leads to call drops.
Smaller, less-profitable operators, such as Aircel, Tata Telecom and Videocon Telecom, can now generate income from under-used spectrum by trading with larger operators in loss-making service areas to focus on profitable regions.
State-owned BSNL and MTNL, Fitch said, will benefit as they own large chunks of under-utilised 900MHz spectrum, which they can trade to generate cash.
Fitch noted, however, that trading could be slowed in the short term by new taxes and restrictive rules, which limit a spectrum holding of 25 per cent of the available airwaves in one service area.
Boost for RCom
The new rules are credit positive for RCom, the fourth largest player, as it can now reduce its financial leverage by selling its under-utilised pan-India 800MHz spectrum, Fitch said.
RCom and Reliance Jio Infocomm are expected to be the first to take advantage of the new regulations, with plans to enter a nationwide spectrum sharing/trading deal as early as next week. A month ago the two companies reportedly agreed to sign a sharing deal that will give Jio access to 10MHz of contiguous 4G spectrum, while RCom will gain access to Jio’s 4G network in the same 10 regions.
Meanwhile, the new trading rules could add about $600 million to the cost of the planned merger between RCom and Russia’s Sistema, senior sources told the Economic Times, because the 800MHz spectrum RCom bought in the March auctions can only be traded “if the differential of the price discovered in the latest auction and the March 2013 price on the balance period is paid to the government”.
The government’s logic is that the spectrum awarded in 2013 was non-contiguous, while that offered in March was continuous and therefore has a higher value since it can be used for 4G services.