Tuesday, 26 September 2017

Telco debts, M&A make immediate India auction unlikely

By Mary Lennighan, Total Telecom
Wednesday 30 August 17

TRAI opens consultation into forthcoming spectrum auctions, but heavily-indebted telcos are unlikely to be in a hurry to spend more.

The Telecom Regulatory Authority of India (TRAI) this week opened a consultation into the conditions surrounding the next auction of mobile spectrum in the country. While it did not take a firm position in its consultation document, the Indian regulator's comments suggest a new frequency sale will not take place quickly, given the financial pressures on telcos and the ongoing wave of M&A. There is a raft of spectrum up for grabs in India across multiple bands, including spectrum left unsold after last year's auction and new airwaves between 3…

The Telecom Regulatory Authority of India (TRAI) this week opened a consultation into the conditions surrounding the next auction of mobile spectrum in the country. While it did not take a firm position in its consultation document, the Indian regulator's comments suggest a new frequency sale will not take place quickly, given the financial pressures on telcos and the ongoing wave of M&A.

There is a raft of spectrum up for grabs in India across multiple bands, including spectrum left unsold after last year's auction and new airwaves between 3.3 GHz and 3.6 GHz that are often referred to as 5G frequencies. The government wants to push on with a new sale, doubtless keen to take any opportunity to boost its coffers, but the operators themselves are unlikely to be in any hurry.

The TRAI noted that the Department of Telecommunications (DoT) expects to carry out a new auction this year, despite the fact that the previous spectrum sale was as recent as October 2016 and around 60% of the airwaves on the block at the time were left unsold. Operators have yet to fully deploy the spectrum they acquired, it said.

"Moreover, the telecom industry is presently undergoing [a] consolidation phase," with a number of operators having filed M&A requests and others having traded their spectrum and left the market, it said.

In addition, operators have significant debt burdens to tackle, much of which is related to spectrum purchases.

According to the DoT, telcos owe 3.08 trillion rupees (€40 billion) over the next 11 years through deferred payment plans for spectrum acquired at recent auctions, the TRAI said.

That sum is in addition to the INR4.6 trillion they owe to various financial institutions and banks.

"Due to hyper competition, concerns have been expressed about the financial health of the sector, its revenue growth and the capability of the companies to meet their contractual commitments, the TRAI said.

The regulator has asked for feedback on when the next auction should take place and, if the sale were to happen now, should all the available spectrum be sold off at once or in a phased manner, with some bands held back based on the development of the relevant ecosystem?

That last comment suggests the regulator is keen to hold off on selling the frequencies earmarked for 5G at least.

The consultation asks for feedback on block sizes for the 3.3 GHz-3.4 GHz and 3.4 GHz-3.6 GHz frequencies, and questions whether block sizes for the other bands – 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2.1 GHz, 2.3 GHz, and 2.5 GHz should remain the same as they were in the previous auction.

It also addresses rollout conditions, spectrum caps and, crucially, the reserve prices of the various frequencies.

With the last auction having taken place just nine months ago, the methods used to calculate the value of spectrum will not have changed much, the TRAI noted. However, it pointed out that estimated values could have changed based on the actual prices paid at the auction.

The government had set a target of raising a minimum of INR5.44 trillion (€71 billion) from the last auction, but actually brought in INR657.9 billion (€8.8 billion).

The regulator has asked for responses from the various stakeholders by 25 September, with counter-comments due by 3 October.

Given all of the above, it would seem unwise to move forward with an auction at this time.

Whether "unwise" translates to "unlikely" in the government's eyes remains to be seen; when it comes to Indian spectrum auctions, all bets are off.

But it is certain that the government will not garner broad support from the beleaguered operator community for a 2017 auction, which of course reduces the likelihood of a sale taking place.

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