Two years ago, it was a story of aggressive bidding for spectrum. Now, if the government were to go for re-allocation of 2G spectrum through auction, as suggested by the court, it might be a lukewarm affair, according to experts.
For one, the value of a telcom spectrum has dipped dramatically since 2008, when the controversial, scam-tainted allocation took place. Margins in the industry have been eaten away by tariffs wars and even established players are yet to see a full recovery in pricing for voice minutes. That has resulted in valuation hits.
Norwegian company Telenor, for instance, placed a value of Rs 600 crore on its Indian joint venture, Uninor. This is despite the fact that it invested Rs 6,100 crore to pick up 67.25 per cent stake in 2009. Its current value is effectively around ten per cent of its investment. All of Uninor’s licences stand to be cancelled, as per the order.
“We have seen indications that the overall demand supply balance in spectrum has reversed since 3G auctions,” notes Anand Shanbhag, executive director at Avendus Securities. “There are very few operators who are growing and profitable. And those which participated in 3G auctions have lesser demand for spectrum.” Added to that, the number of operators who would participate would be far lesser as well, experts say. Not all the eight companies whose licences stand to be cancelled are expected to participate. Bigger players like Tata Teleservices and Idea Cellular, backed by bigger and financially stronger blue-chip conglomerates, are the ones expected to participate aggressively, as they already have operations in other circles and the ability to raise additional financing debt. Moreover, many of them including Tata Tele or Idea are backed by deep pocket international strategic investors like DoCoMo and Axiata who can pool in additional capital if required.
| FADED CHARM |
| * Value of telcom spectrum has dipped dramatically since 2008 |
| * Not all the eight companies whose licences stand to be cancelled are expected to participate |
| * Idea and Tata DoCoMo most likely to pay additional amounts to secure cancelled licences |
| * Lack of clarity prevails about possibility of refund of Rs 1,600-crore licence fee |
On a standalone basis too, these companies can arrange the cash. For example, Idea alone had a free cash flow of around Rs 103 crore as on September 2011. Tata Teleservices is an unlisted company, but as on March 2011, Tata Sons, the group holding company, had an FCF of Rs 1,959 crore. Docomo, with a 26 per cent stake in the company is part of NTT Docomo, Japan’s largest mobile and communication company with $49 billion in revenue and $9 billion of cash and cash items as on March 2011.
Nomura said Idea and Tata DoCoMo were most likely to pay additional amounts to secure these cancelled licenses. This would be “in order to maintain their pan-India coverage, while Uninor, MTS, S-Tel etc may review their Indian aspirations altogether post this ruling”, the Japanese MNC said in a research report.
Idea's statament on Friday also highligted thier commitment to the sector. "Idea Cellular is a part of the Aditya Birla Group and is one of the largest mobile operators in the country. In Karnataka alone, we cover 20,000 towns and villages, making us the most trusted and reliable service providers. We will continue to be committed to provide the best voice and data benefits to our subscribers in Karnataka," it said.
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Many companies, experts say, will prefer to use this to exit the business itself. Barring Tata, Idea, Uninor and Sistema Shyam, the rest of them have negligible subscriber base. Etisalat DB, STel, Loop and Videcon together have a total combined subscriber base of around 10 million.
A new operator had earlier offered to return its spectrum back in exchange of a refund. This request was refused by the government. For such operators, it might be a good idea and a good opportunity to exit the business, say experts. However, there is lack of clarity about the possibility of a refund of the Rs 1,600 crore licence fee.
Alok Shende, principal analyst and co-founder of Ascentius Consulting, expects the auction -- if it goes through -- to have a farther-than-expected financial impact. “The excess spectrum that these companies would be holding will have to be paid for,” he adds.