Telcos likely to shell out Rs 1 lakh crore to buy spectrum in next two years: Crisil
Telecom companies are expected to shell out Rs 1 lakh crore for snapping up spectrum during the forthcoming auctions and a little over one-third of this capex will be spent this fiscal year itself, says a report.
Half of this amount will be externally funded over the next two years and almost 75% of this will be spent by private telcos, said the report by rating agency Crisil.
"In the current fiscal, the outgo towards spectrum acquisition will be Rs 37,000 crore of the Rs 1 trillion. Though this is lower than the budgetary estimates of around Rs 56,000 crore, this still is a significant outgo for an industry reeling under Rs 4 trillion of debt as of March 2016," the report said.
The government plans to put on the block over 2,300 megahertz (MHz) of spectrum across seven frequency bands at the auction expected to be held over the next few months. This also makes the highest quantity of airwaves that's being sold at one go.
"Unlike previous auctions, operators this time do not face business continuity issues. Yet we expect reasonably healthy participation because incumbents will ramp up their 3G and 4G spectrum holdings ahead of Reliance Jio's entry. Telcos are already facing increased network congestion in circles with high data consumption like key metros, which account for 60% of the data traffic," Ajay Srinivasan, a Director at the rating outfit, said.
"Therefore, augmenting network capacity and spectrum holdings will be critical for maintaining their competitive position. Overall, telcos are expected to fork out Rs 1 trillion."
Crisil expects bidding in the 700 MHz to be extremely selective with players preferring the less pricey 1800 MHz.
About half of the spectrum put on the block in the 1800 MHz and the 2100 MHz, and most of it in the 800 MHz and the 900 MHz, would be lapped up, while bidding interest in the 2300 MHz and 2500 MHz is expected to be limited (lower the frequency band, the higher is its efficiency to carry long- distance signals).
Top three telcos, which cumulatively account for three -fourths of the revenues, are expected to share 55-60% of the total spending at the auctions.
"Large telcos are cumulatively likely to spend Rs 1.2 trillion over the course of the current and next fiscals on spectrum payouts as well as network augmentation," said Srinivasan.
With profitability and operational cash flows of the sector projected to come under pressure with Jio entry, reliance on external funding is set to increase, he added.