Telecom companies may stay away from the 700 MHz auction planned by the government in the second half of 2016, as it may further put pressure on the finances of these companies, according to Fitch Ratings.

The top four telcos — Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications — may hesitate to bid for 700 MHz spectrum, given their stretched balance sheets and need to preserve cash in light of impending competition from the entry of Reliance Jio in March-April 2016, FitchRatings said.

Consequently, the 700 MHz spectrum auction planned in H2 of 2016 may not be attractive to telcos, given limited device availability and that telcos possess alternative spectrum (850MHz/1800MHz/2300MHz) to roll out 4G services, Fitch added.

Fitch believes that competition is likely to intensify in the sector on Jio’s entry and the sector may see further consolidation.

“We expect competition to intensify upon Jio’s entry in the market, as it is likely to provide cheaper and faster data-focussed tariff plans armed with sufficient spectrum and access to funds, Fitch said.

Data tariffs declining
“Blended monthly average revenue per user could fall by 5-6 per cent to around Rs 160 (2015: Rs 170), due to a decline in data tariffs, which will more than offset the rise in data usage. The top-four telcos’ average operating EBITDAR margin will narrow by 100 -200 basis points (2015: 35 per cent), due to competition and greater marketing spend, Fitch states.

Smaller and weaker telcos will further seek mergers and acquisitions or exit the industry, in light of the high spectrum prices and stretched balance sheets, Fitch adds.
DH News Service