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Bharti, Vodafone Idea To Be Limited In 5G Auction: Fitch

Global rating agency Fitch on Monday said that a high price tag of $70 million per Mhz is a big deterrent for telcos like Airtel and Vodafone Idea to bid for 5G spectrum auction.

“Fitch believes the Telecom Regulatory Authority of India’s (TRAI) 5G spectrum price for spectrum band of 3300-3600MHz of $70 million per M Hz is expensive compared with 3G and 4G spectrum auctions in the past,” it said.

“At the current price, each telco will need to commit roughly around $7 billion for a pan-India licence for 100MHz of 5G spectrum. The timing of 5G spectrum auction is uncertain, although we believe that the auction is unlikely to happen in 2019, and may occur only in 2H20 as the Indian government and TRAI may require time to prepare for spectrum auctions.

“We expect limited participation in the 5G spectrum auctions by Bharti and Vodafone-Idea — given the expensive spectrum and limited business case of 5G in the short to medium term.”

It also added that 5G does not have much commercial viability in India.

“We believe that 5G may have only limited commercial viability in the short term, as 4G penetration is still low in India and there is little appealing content or applications — which cannot be addressed by 4G speeds. Furthermore, Indian telcos lack extensive intra—city fibre infrastructure, which is responsible for poor internet experience relative to other markets and is also critical in order to provide a seamless 5G experience. Management has publicly stated that it may not participate in the 5G spectrum auction at current prices,” it said.

In June, Communications Minister Ravi Shankar Prasad had said that the government is likely to hold the auction this year and also start trials in the next 100 days.

The report also said that the Indian ARPU (average revenue per user) is one of the lowest in the world, at $1.7 per month.

“We believe that Indian consumers can afford to spend more on mobile services. This is evident from average monthly user data consumption increasing by 10 times since Jio’s market entry in September 2016, even though the average industry tariff has declined by over 50 percent. We believe that data demand will remain robust even if telcos were to slightly increase data tariff per megabyte. Data consumption has been driven by the cheaper tariff and proliferation of more affordable Chinese smartphones.”

In the same report focused on Bharti Airtel, the agency said the third biggest telco, by subscribers, will earmark $1 billion towards upfront 5G spectrum payments in FY20.

The agency said it has a stable rating on Bharti’s ‘BBB —’ rating as it feels the average revenue per user are on the way up and also due to de-leveraging work through the sale of non-core assets by the company.

Despite the experience of the last two years, where the entry of the deep-pocketed Reliance Jio wrecked the telecom market, the agency said it expects competition to ease as three broadly equally sized telcos have emerged, each with a 31-33 percent revenue market share.

“We expect the blended average tariff to rise by 5-10 percent during FY20, underpinned by the incumbents’ introduction of a minimum mobile tariff of Rs 35,” it said.

This estimate was attributed to expectation of Jio starting to raise tariffs gradually as it starts to focus on monetisation of its large investment.

“However, we have factored in a conservative upfront 5G spectrum payment of $1 billion for Bharti in FY20. Indian telcos are generally required to pay around one—third of the cost of the spectrum upfront, with the remaining balance over 16 years after a two-year payment holiday. In January 2018, TRAI extended existing deferred spectrum liability payment to 16 years from 10 years,” it said.

Bharti had a total debt of $11 billion (excluding the $6.1 billion of deferred spectrum liabilities) at FY19, including short-term debt of $5.2 billion. Cash and equivalents were $1.5 billion. Bharti intends to use $3.5 billion equity injection to pay a significant portion of the Indian rupee-denominated short-term debt, it said.

“We also believe that it intends to use $680 million in equity proceeds from Airtel Africa to repay debt at 100% subsidiary Bharti Airtel International (Netherland) B.V (BAIN) or the debt at the African operating companies. The company used $1.45 billion raised through pr ivate placement of a stake in Airtel Africa during FY19, to call $995 million on its 2023 unsecured notes outstanding at BAIN,” it said.―The Hindu

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