Callers must brace for higher tariffs post-auction: CARE Ratings

Consumers would have to bear the brunt of ongoing aggressive bidding for telecom spectrum, which would force mobile operators to hike tariff, Care Ratings said today.

“We expect that operators will further leverage themselves, while customers would have to bear the brunt of tariff hikes which would become inevitable for operators to realise returns on these huge investments,” said the domestic rating agency.

Some analysts have been saying that competitive pressures, especially the entry of Reliance Jio, would ensure that there would be minimum tariff hike.

Bids by companies led by Idea Cellular, Vodafone, Bharti Airtel, Reliance Communications as well as the yet to be launched Reliance Jio, have topped Rs 1,08,000 crore as of yesterday after 13 days of intense bidding. This is a lot more than the amount realised from the last auction in 2010 and much above the government’s reserve price of Rs 82,000 crore.

In a note, CARE said that companies bid aggressively because of the impending expiry of spectrum and this has resulted in buying spectrum to ensure continuity of business.

Licences for Idea Cellular’s 9 circles, Airtel’s 6 circles and 7 circles each of Vodafone and RCom are coming up for renewal, the note said, adding that a significant percentage of revenues for players are at stake.

Idea derives 74 per cent of its revenues from these 9 circles, Airtel – 35 per cent, Vodafone – 48 per cent and RCom – 15 per cent, it said.

The ongoing auction would result in more pressure on the companies’ debt profile, CARE said, adding that they are already under pressure.

Companies are required to pay 25-33% upfront ontheir winning bids, CARE said, adding that this would accrue in revenues of Rs 25,000 crore for the government within this fiscal, ending March 31.

It said that given these circumstances, tariff hikes are “inevitable”, adding that moves by third party applications to offer voice service, which contributes the maximum revenue for telcos, is also a threat.

On Reliance Jio’s entry, Care Ratings pointed out to the highest earnest money deposited by the Mukesh Ambani-led company at Rs 4,500 crore which indicates its intention to have a large amount of spectrum.

“Its aggressive bidding is expected to put existing operators under pressure,” it said, without commenting on its pricing after launch.

The government’s spectrum auction kitty rose to a record Rs 1.08 lakh crore at the end of 13th day of bidding yesterday, with 89 per cent of 2G and 3G radiowaves put on sale provisionally allocated to telecom operators.

However, activity is slowing down, since the premium 900 Mhz band and 2100 Mhz band used for 3G services, did not see bidding for any circles yesterday.

Posted by on March 20, 2015. Filed under Technology. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.