Telecom companies are likely to commit USD 13 billion or over Rs 80,000 crore in the ongoing spectrum auction with Idea Cellular being the "most exposed" in the race as a bulk of its licences are getting expired soon, global ratings agency Fitch has said.
The much awaited spectrum auction, wherein eight companies are bidding to acquire radiowaves in four bands, started today. Fitch said: "The auction is likely to see intense bidding by telcos to retain their existing spectrum and to acquire new spectrum as supply is limited. Telcos are likely to commit at least USD 13 billion in the auctions."
The government has set a base price of Rs 82,395 crore for the 2G and 3G spectrum across various frequencies. Sources in the government have said that it expects bids to top Rs 1 lakh crore. The bids are expected to ease pressure on the rising fiscal deficit, which has already overshot the budget estimate and was at 107 per cent as of January.
Over three fourths of the bids will come from the top four operators including Bharti Airtel, Vodafone and Idea Cellular, while Reliance Jio - slated to make pan-India entry this year - will also be bidding, the agency said. Among the lot, the Aditya Birla Group-promoted Idea may have to bid most aggressively as over 70 per cent of its annual revenue is at stake, it said.
"Idea is most exposed in the auctions as it needs to retain its expiring spectrum in circles which contribute around 70 per cent of its annual revenue," it said, adding that it is the same for Vodafone and Airtel at 45 per cent and 35 per cent, respectively. Each of the three said companies' total bids will be between USD 2.5 to 4.5 billion, including acquiring spectrum getting expired as well as new spectrum for serving the growing data usage.
Idea's licence in nine circles is expiring, while for Vodafone the number stands at seven and for Bharti, it is six circles where a renewal is required, Fitch said. Acknowledging that both Bharti and Idea have created a sizeable war-chest for the auctions through equity sale or monetising assets, it said only Bharti will continue to hold on to its rating post-auction.
The least affected among the companies will be Anil Ambani-promoted RCom, which will bid up to USD 667 million and will also continue to retain its rating, Fitch said. The cash flows of the companies will still be manageable post auction as well, Fitch said, noting that they have the option to pay spectrum cost in phases, with one-quarter upfront and the balance over 10 years.
"Most telcos' net debt will rise to fund spectrum payments while competition limits their ability to raise tariffs, particularly with the impending entry of a new competitor, Reliance Jio," it said. Reliance Jio, which is rolling out its services with an investment of USD 12 billion, will bid to fill its spectrum gaps in the 1,800 MHz band, it said. Moreover, Reliance Jio "could push up the spectrum price in 900 MHz for other telcos, if it chooses to do so, as the auction mechanism hides the identities of participants," the agency noted.
Bidding for the 900 MHz band, which can be used for both 2G and 3G, will be the most intense and actual bids would come up to 20 per cent higher than the reserve price, it said. Eight operators are likely to bid for a total of 465 MHz of spectrum across four bands -- 800 MHz, 900 MHz, 1,800 MHz and 2,100 MHz -- where each band is valid for 20 years, it said.