Spectrum auction: Balance sheet stress for telcos

The largest ever sale of air waves is scheduled to start on 29 September. The key highlight of the auction is the higher upfront payment that the government is seeking from operators. An important feature of the Notice Inviting Applications (NIA) is that the government has sought upfront payment of 50%, from 30% in previous auctions.

This will lead to higher balance sheet stress for companies looking to acquire spectrum in this band. Analysts expect Vodafone and Idea to garner the largest chunk of 1800 MHz spectrum to improve their 4G footprint. The Street does not expect meaningful participation in 700 MHz spectrum band due to high reserve price and relatively nascent 4G ecosystem.

Analysts expect Bharti and Idea to spend around $700 mn and $500 mn to fill their 3G/4G gaps and estimate the total amount raised in the auction to be $3.5 billion for the government. These auctions will further add to the debt of Indian telcos and would push their debt/equity ratio upwards from the 3x to 5x towards the end of the year as spectrum payouts begin.

For more on spectrum auction and the impact on telcos, read the following stories 

1) Flat 3% spectrum usage charge for auctions

2) Spectrum auction may not find many takers

3) Govt clears biggest spectrum auction

4) New spectrum pill for data scarcity