New Delhi: Ability of telecom operators to trade spectrum may curtail excessive bidding in future auctions, credit rating agency Fitch said Thursday.
"The top three telcos, including market leader Bharti Airtel, have increased their combined revenue market share to 73 percent... Their ability to trade spectrum may curtail excessive bidding in future spectrum auctions," Fitch said today.
The government received the highest bid of over Rs 1.1 lakh crore in spectrum auction held in March. Idea Cellular made a bid worth Rs 30,307 crore to purchase spectrum. Airtel's stood at Rs 29,130 crore while that of Vodafone read Rs 25,959 crore.
Fitch Ratings is of the view that the top three telecom operators -- Bharti Airtel, Vodafone and Idea Cellular -- may further consolidate their market share by acquiring additional spectrum from smaller telcos, decongest their network, and support their fast-growing 3G/4G services.
Spectrum trading coupled with sharing will spur consolidation as it provides an exit route to smaller loss-making telcos that have struggled to generate positive operating cash flows, the agency said.
Additionally, Fitch Ratings said, the spectrum trading and sharing guidelines are likely to reduce regulatory uncertainty and ease network congestion.
Under the guidelines, telecom operators can outright transfer spectrum held by them to the other company.
"Specifically, these new rules are credit positive for the fourth-largest telco -- Reliance Communications -- which can now reduce leverage through monetising its under-utilised pan-India 800 MHz spectrum," it said.
The agency expects Reliance Jio, RIL's telecom subsidiary, which is reportedly planning 4G services launch in December 2015, to acquire 800 MHz spectrum to provide better indoor coverage as it owns the spectrum only in 10 circles.
"RCom could be a source of this spectrum as it has continuous spectrum bandwidth in 800 MHz and already has a reciprocal infrastructure agreement with Jio," the agency said.
A report of Bank of America-Merrill Lynch also expressed similar views, which said RCom could liberalise its 800 MHz spectrum and hand it to Reliance Jio for 4G services.
"We consider these norms to be positive for the industry as it would facilitate consolidation in the absence of any friendly merger and acquisition rules. Jio could possibly partner with RCom post trading and sharing," the BofA-Merrill Lynch report by analysts Sachin Salgaonkar and Karan Parmanandka said.
"Smaller telcos -- including Tata Telecom, Videocon Telecom and Aircel -- make operating losses, are struggling to gain market share, and are saddled with high debt. These businesses could trade their under-utilised spectrum assets with larger telcos in loss-making Indian circles to focus only on profitable ones," Fitch said.
State-owned telcos, including Bharat Sanchar Nigam and Mahanagar Telephone Nigam, will benefit as they own a large chunk of the most-efficient but underutilised 900 MHz spectrum which can be traded to boost cash, the report said.
"These (BSNL and MTNL) companies also make operating losses as employee costs are 50 percent of the revenue. Furthermore, they have high debt, which was taken on to fund the acquisition of spectrum reserved for them by the government," Fitch said.
The agency, however, sees adverse impact on trading activity in the short term due to new taxes and fees and restrictive rules.
