Private telcos could skip 5G spectrum auctions if prices are too high: Fitch Ratings

Credit rating agency, Fitch Ratings has said that India's new National Digital Communication Policy (NDCP) could benefit the sector by making it easier to meet rapidly rising data demand and addressing tax and fee burdens on the industry.

The NDCP's plan to expand broadband coverage funded by the universal service obligation fund and in partnership with private telcos is likely to support private telcos' growth, as it will broaden the customer base and improve internet adoption, particularly in rural areas, the rating agency said.

Private telcos will also benefit from NDCP plan to encourage more efficient spectrum usage, by making available harmonized and contiguous spectrum bands and further liberalizing spectrum sharing and trading.

"We believe private telcos could skip 5G spectrum auctions if prices are too high," the firm said.

The agency also pointed out that Telcos' costs and red tape could be cut by the NDCP's plans to review and rationalize the sector's tax structure and optimize future spectrum asset pricing.

Indian telcos face heavy and multiple taxes - including license fees, spectrum usage charges, and universal service fees on top of expensive spectrum assets. Meanwhile, intense competition has limited telcos' pricing power. Overall, these pressures have stretched balance sheets. The sector has also been subject to frequent litigations due to high taxes, which are currently disputed by the telcos.

The rating agency also expects that price competition to ease in the medium term following the emergence of three large telcos - Bharti, Reliance Jio and the merged entity of Vodafone-Idea - which we estimate have a combined revenue market share of over 90 percent.