Idea will need Rs 15,000 cr to renew existing spectrum

Idea will need Rs 15,000 cr to renew existing spectrum

Idea Cellular, the country’s third largest mobile operator by revenue and subscribers, will need as much as Rs 15,000 crore to renew its existing spectrum in the upcoming auctions, which is expected to see cut-throat bidding among telcos.

The Mumbai-headquartered telecom major is most precariously positioned as far as number of licences are due for renewal and the contribution they make to overall subscriber and revenue base. Just for perspective, while only six circle licences of Bharti Airtel are up for renewal which contributes around 32% to its overall subscriber base and 37% to its total revenue, Idea Cellular’s renewal is in nine circles which contributes around 70% to its overall subscriber base and 79% to its revenue base. Vodafone’s licences are up for renewal in seven circles which contribute around 54% to its subscriber base and 55% to its revenue base. Bharti’s edge is that it had bought sufficient spectrum in the 1800 Mhz band in the February 2014 auctions so it has a better back-up for the 900 Mhz compared to Idea and Vodafone.

However, Idea’s CEO Himanshu Kapania told FE in a recent interview that the company is well prepared for the auctions.

On the positive side, Idea has one of the lowest debt levels in the telecom industry at Rs 11,800 crore, therefore it is in a position to raise further from banks to fund the purchase and renewal of spectrum. Its net debt to Ebitda stood at 1.13 on December 31.

“If you look at our performance in the December quarter, our cash flow stood at Rs 2,029 crore, registering 29.5% growth. Even as a conservative growth rate of 25% we should be able to generate Rs 10,000 crore in calendar year 2015 to fund our spectrum purchase. And we would need Rs13,000-15,000 crore to renew spectrum,” Kapania said.

Mobile operators opt for the deferred payment mechanism where they have to pay just a third of the total amount upfront, followed by a two year moratorium. The balance payment is made in equal installments over a 10-year period.

“Out of 465 MHz of spectrum that will be up for renewal, Idea would need to renew about 55 MHz, which represents around 12% of the total. So we have sufficient headroom to manage our spectrum renewal process,” he added.

The price of spectrum in the upcoming auctions is expected to skyrocket in the 900 MHz and 2100 MHz frequency bands as incumbent operators, whose licences in the 900 MHz frequency are going to expire, will have no option but to bid astronomical sums.

FE had earlier reported that in 2010, when spectrum was in short supply, telcos bid Rs 16,751 crore per 5MHz of 2100 MHz spectrum compared to the base price of Rs3500 crore — in February 2014, when spectrum was not in such short supply, telcos paid Rs 4,446 crore per 5 MHz as against the base price of Rs 3,705 crore.

A February IDFC research report on the upcoming spectrum auctions pegs Idea Cellular’s expenditure at around Rs 21,000 crore, Bharti Airtel at Rs 17,400 crore, Vodafone at Rs 22,300 crore and Reliance Communications at Rs 4,800 crore.

Kapania said it is highly unlikely that a price war of sorts will be played out in the upcoming auctions. “The industry has a current leverage of Rs 2.75 lakh crore. Telcos will be careful while taking their long term bets,” Kapania added.