Portfolio

More spectrum for operators

K Venkatasubramanian | Updated on January 23, 2018 Published on May 24, 2015

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The first year of the Modi Government meant more of a continuation of policy as far as the telecom sector is concerned; the sector once again faces a huge payout for spectrum purchased in the auction held in March this year.

Collectively, the operators bid for a whopping ₹1.1 lakh crore. About 25 per cent of this sum, which was to be deposited before March 31, has helped the government achieve its fiscal deficit target. Only the top few operators and some regionally strong players participated.

The telecom sector, which already has a debt of ₹2.5 lakh crore, would be faced with at least ₹3.6 lakh crore in loans after making winning bids in the auction.

After the 2G scam, it became a government policy, even under the previous UPA regime, to sell all available airwaves through the auction route alone.

Of course, the only sweetener is that there is a two-year moratorium on payments, and payouts would be done in 10 instalments after this period for 10 years.

Auctions took place for 2G, 3G and 4G offerings. Airwaves from the 800/900/1800/2100 MHz bands were up for grabs. The most efficient 900 MHz band witnessed the most aggressive bidding. Since data has become the key growth area, 800 MHz and 2100 MHz bands too witnessed strong bids. Idea Cellular (over ₹30,000 crore), Bharti Airtel (over ₹29,000 crore) and Vodafone (nearly ₹26,000 crore) were the major bidders, as expected. Reliance Jio (over ₹10,000 crore), Tata Teleservices (over ₹7,800 crore) and Reliance Communications (₹4,300 crore) were the other large bidders.

After the auction, the telecom market appears to be getting even more skewed towards Bharti Airtel, Vodafone and Idea Cellular. These operators command more than 70 per cent of the revenue market share.

Reliance Jio may be expected to offer some competition as and when it launches operations. With RCom making selective bids and other regionally strong operators looking to fill gaps in offerings, the telecom sector appears to be heading for consolidation.

The stocks have more or less reacted positively in the case of Idea Cellular and Bharti Airtel, with the auction payout not being a heavy hangover.

Both these companies are still well placed to service the increased debt, given their strong operational cashflows. At 18 times the trailing 12-month earnings, Idea Cellular still appears attractive for fresh entry, while Bharti Airtel, at 30 times the trailing multiple, can be retained.

Published on May 24, 2015

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