CARE Ratings expects that the aggressive bidding for spectrum in the ongoing auction would result in operators hiking tariffs. Consumers will have to pay more for telecom services for the operators to realise returns on huge investments being made by them for acquiring spectrum.
So far, the government has received cumulative bids of over Rs 1,090.0 billion at the end of the fourteenth day (March 19, 2015) and 86 rounds of the ongoing spectrum auctions. The cumulative bids received so far are significantly higher than the amount realised by the government from the spectrum auction held in 2010 and above the government?s reserve price of Rs 820 billion.
According to the rating agency since a number of operators are facing impending expiry of spectrum, they have no option but to bid aggressively to ensure continuity of business. Licences for Idea Cellular in nine circles, Bharti Airtel in six circles, and Vodafone India and Reliance Communications in seven circles each are due to expire in 2015-16. CARE Ratings has stated that a significant percentage of revenues for players are at stake with Idea Cellular deriving 74 per cent of its revenues from the nine circles; Bharti Airtel earning 35 per cent from these circles); Vodafone India earning 48 per cent and Reliance Communications earning 15 per cent, respectively from seven circles each.
Further, CARE Ratings points out that the highest earnest money (Rs 45 billion) deposited by the Mukesh Ambani-led Reliance Jio Infocomm Limited (RJIL) indicates that the company intends to acquire large amount of spectrum. In fact, aggressive bidding by RJIL is expected to put incumbent operators under pressure.
As per the rating agency, the ongoing auction would result in more pressure on the operators? debt profile. Operators are required to pay 25-33 per cent of their winning bids upfront, resulting in revenues of Rs 250 billion for the government in the current financial year ending on March 31, 2015.
CARE Ratings emphasises that in such a scenario tariff hikes are ?inevitable.? It also adds that increasing moves by third party applications to offer voice service, which contributes the maximum revenue for telecom companies, also poses challenges for the operators.
