Limited Participation Likely for Telecom Spectrum Auctions: ICRA

Forthcoming spectrum auctions are likely to attract limited participation from telecom companies, and lead to the rise of industry debt to Rs. 4,60,000 crores, credit rating agency ICRA said on Thursday.

"Given the estimated level of participation in the auctions, the industry debt would rise to around Rs. 4,60,000 crores, further stressing the capital structure of the industry and deteriorating the debt protection metrics," said ICRA's senior vice president, Corporate Sector Ratings, Sabyasachi Majumdar in a statement.

Expecting a sale of spectrum worth Rs. 60,000 to Rs. 80,000 crores, he said the industry's consolidated debt level rose from Rs. 2,90,000 crores in March 2014 to around Rs. 3,80,000 crore by December 2015.

"This rise in debt is expected to worsen the gross debt/OPBDITA levels of the industry to around 6.5 times as against the current levels of 5.4 times," added Majumdar.

According to ICRA, the industry is expected to face cashflow pressures and thereby require additional funding to sustain network rollout momentum.

ICRA highlighted that some telecom companies have taken inorganic de-leveraging steps by selling stake in certain assets, which, if successful, can bring Rs. 30,000 crores to the industry.

Interestingly, the industry is facing stress on capital structure at a time when operating metrics are also facing pressure.

Gross Average Revenue Per User (ARPU) declined from Rs. 183 in Q3 2015 to Rs. 173 in Q3 2016.

Though data ARPU rose from Rs. 145 to Rs. 162 during the period under review, voice ARPU fell from Rs. 140 to Rs. 127, said ICRA.

"But this data ARPU is driven by increase in usage, while the realisations remain under pressure. Going forward, growth in subscriber base and usage is expected to slow down, even though the realisations are not expected to grow materially," it said.

Further, the entry of Reliance Jio Infocomm is expected to drive the competition madder and aggravate the already declining voice and data revenue realisations for telecom companies.

However, the recently proposed merger/ spectrum trading deals which can lead to consolidation in the sector is a ray of hope, it said.

Smaller telecom companies looking to sell their unutilised spectrum holdings to larger players interested in improving spectrum holding outside auctions can bring in network efficiencies, it added.