Rating agency ICRA on Wednesday said it expects the telecom industry to shell out around ₹1-1.1 lakh crore on the upcoming spectrum auctions, and given the relaxed payment terms, the upfront outgo is likely to be around ₹10,000 crore for the industry.
The Cabinet on Tuesday approved the auction of spectrum across various bands – 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz), 3,300 MHz, and 26 GHz — totalling 72,097.85 MHz.
“While telecom operators consider reserve prices to be very high, nonetheless ICRA expects telcos to buy spectrum worth around ₹1-1.1 lakh crore in these auctions, which will be primarily towards developing 5G capabilities but also plugging other gaps,” ICRA said in a latest report.
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Tariff hike
It also said the telecom industry’s debt levels are likely to increase with the 5G spectrum auctions, while the average revenue per user (ARPU) is likely to rise to ₹170 by the end of this financial year, driven by tariff hikes and consistent upgradation of subscribers.
“The telecom industry has been witnessing green-shoots of recovery. The tariff hikes implemented by the industry participants coupled with consistent upgradation of subscribers to 4G from 2G and increase in usage of telephony services is expected to result in improvement in industry ARPU (excluding BSNL) to around ₹170 by the end of FY2023, translating into growth in industry operating income by around 10-12 per cent,” it said.
While the upfront payment is likely to remain low, as TRAI has recommended an elongated payment plan, the total debt on the industry is likely to increase which is likely to keep the debt metrics subdued, it said.
Rising debt burden
It said debt continues to remain a vulnerable point for the industry. ICRA expects industry debt levels to increase to around ₹5.7-lakh crore as on March 31, 2023, before moderating to ₹5.3 lakh crore as on March 31, 2025.
It said the telcos have been focusing on deleveraging. For instance, Bharti Airtel recently concluded its rights issue of ₹21,000 crore and collected 25 per cent as upfront payment, while Vodafone Idea is also scouting for a fund raiser. However, addition of deferred liabilities continues to keep the debt levels elevated.
“TRAI has come out with recommendations of relaxed payment terms, which allow telcos to pay for the spectrum in 20 installments thus ensuring very low upfront payment. This also avoids any dent on the liquidity position and is also likely to boost participation...the industry needs to shelve out only ₹17,000 crore annually towards spectrum installments, till the moratorium ends,” Ankit Jain, Vice-President and Sector Head, Corporate Ratings, ICRA, said.
The industry’s consolidated revenues are expected to be around ₹2.6-2.7 lakh crore with operating profit before depreciation, interest, taxes and amortisation of around ₹1.2-1.3 lakh crore for FY23. These are likely to translate into a return on capital employed of around 9-10 per cent for FY23 for the industry, Jain added.