Prospects for consolidation in telecom sector received a major boost with the recent Cabinet approval for capping of spectrum per operator at 35% of total spectrum compared with the 25% earlier. This was accompanied by the the removal of a cap for intra-circle bands, and the 50% cap will now apply to combined spectrum holdings in the sub-1GHz.
It has also permitted stretching out spectrum payments over 18 years (including a two-year moratorium) instead of the earlier 12 years on equal net present value basis. “Industry is headed towards further consolidation,” said investor and entrepreneur, C. Sivasankaran who is also a minority shareholder in Tata Teleservices Ltd (TTSL). “And, now spectrum will be more valuable,” he said.
‘Spectrum purchase’
“These relaxations mean that Jio can buy outright the crucial 850MHz from RCom instead of having to only use [spectrum] on a sharing basis to stay under the earlier cap,” said G.V. Giri of IIFL Cap. Vodafone and Idea can now retain their 900MHz in all circles, besides getting some cash flow relief on spectrum, according to him. Bharti Airtel can also add more spectrum in a few circles in future auctions without breaching the cap.
Mr. Giri said the change in band-wise cap rules was apt as the number of bands had been increasing. But, when the higher 5G bands arrive, this could again become an issue, he warned.
Vodafone-Idea will no longer be required to sell spectrum in the 900MHz band in five circles — the value of their excess 900 Mhz under old rules was a significant ₹6,200 crore. This was one of the issues preventing them from applying to DoT for the final merger approval of the two telcos. “Now we expect them to move fast, and merge by our original timeline of the second quarter of 2018-19,” he said.
Bharti Airtel and Tata each with 22%-26% share of aggregate spectrum in five circles, can now add spectrum in these circles. Jio’s overall spectrum share is well below the 25% mark in all circles. The Cabinet had also allowed stretching out of spectrum payments over 18 years compared with 12 years earlier, which will see a ₹1,500 crore-₹3,000 crore drop in annual spectrum payouts for most telcos. According to Mr. Giri, Vodafone-Idea will benefit from having extra cash for capital expenditure at a time when their financials are stretched.
However, Mr. Giri ruled out aggressive acquisition of spectrum in the sector. “All major telcos have adequate spectrum in most circles and we don’t see any appetite for more spectrum for now.” The key issue would be whether Jio continues with aggressive pricing, following its price cuts in early January, which may have already had an impact going by subdued subscriber additions in that month reported by Bharti, Vodafone and Idea, according to Mr. Giri.
“The total mobile data traffic per month in India is expected to grow 11 times during 2017- 2023 from 1.3 EB [exabytes] to 14 EB by 2023,” according to the Ericsson Mobility Report of November. “India jumped to top spot in data usage in a period of one year after Reliance Jio launched its 4G services,” added Mr. Giri. Also, as spectrum becomes more valuable, shareholder value may also rise. However one proposal that has grown conentious is that between Bharti Airtel and Tata Tele.
‘Questions over value’
In a debt-free, cash-free deal in October last, Bharti Airtel acquired the consumer mobile businesses of Tata Teleservices Ltd. (TTSL) and Tata Teleservices Maharastra Ltd.
Bharti had agreed to pay only a part of Tata Teleservices’ unpaid spectrum payment liability to DoT over the next 10 years. Now, this time period has also been extended with the Cabinet decision.
TTSL had sought to exit the mobile telecom business due to heavy losses and debt. But it will continue to operate its enterprise, fixed-line and broadband businesses and retain stake in tower firm Viom Networks. However, this deal has disappointed minority shareholders who had hoped the enterprise would have been profitable in the future. Said Mr. Sivasankaran, “all shareholders should be treated equally and fairly and there is no reason to believe that valuable assets can be given away free.” He is a minority shareholder with significant shareholding in TTSL.
“They (TTSL/TTML) have agreed to sell assets at zero value to Bharti while repayment of Tata Tele’s loans for around ₹30,000 crore will remain a Tata group headache and that too with not one single paise haircut,” he said. The move invited criticism from several investors, especially minority shareholders, who are planning to take up this issue with regulators. “We will take it up, once we get the representation from investors,” said Kirit Somaiya, Member of Parliament and President of Mumbai-based Investors’ Grievances Forum.
On February 23, the Bharti Airtel market cap reflected a rise of about ₹40,000 crore from October, before the proposal was announced.
Said a telecom industry specialist, “[Tata Tele’s] spectrum across multiple banks, 40 million subscribers, fibre assets... all put together have a combined value estimated [at between] ₹25,000 crore and ₹30,000 crore. It is therefore a matter of the Tata group structuring the transaction so that [it does] not lose out, as seems to be the case today.”
