Telcos expected to buy spectrum worth Rs 1 trillion to Rs 1.1 trillion in the 5G auction, says ICRA

The telecom industry is estimated to spend roughly Rs 1.0-1.1 lakh crore on the 5G auction, despite telcos' complaints about high spectrum pricing, according to ICRA, which also warned that the sectors's debt level is likely to climb with subsequent auctions.

The ratings firm in addition stated that until the moratorium ends, the industry will be required to pay Rs 17,000 crore in annual spectrum installments. The auction of over 72 GHz spectrum is expected to begin on July 26. Given the auction's eased payment conditions, ICRA estimates that the industry's initial  outlay will be roughly Rs 10,000 crore.

Despite Bharti Airtel and Vodafone Idea's fundraising efforts, ICRA anticipates sector debt levels to rise to roughly Rs 5.7 lakh crore by March 31, 2023, before moderating to Rs 5.3 lakh crore by March 31, 2025. Debt levels are projected to remain high due to the increase of deferred liabilities.

"While telecom operators consider reserve prices to be very high, nonetheless ICRA expects telcos to buy spectrum worth around Rs 1-1.1 lakh crore in these auctions, which will be primarily towards developing 5G capabilities but also plugging other gaps," ICRA mentioned in a statement.

ICRA's comments came after the cabinet approved the sale of airwaves capable of providing 5G telecom services, including as ultra-high speed internet.The cabinet has given a nod for the Telecom Regulatory Authority of India's (TRAI) recommendation of reserve prices for 5G auction.

The TRAI had previously suggested a 39% drop in the reserve or floor price for the sale of 5G spectrum for mobile services in April 2022. According to ICRA's findings, the telecom  industry is showing signs of revival.

According to ICRA, the telecom industry has been showing signs of improvement. " "The tariff hikes implemented by the industry participants combined  with consistent up-gradation of subscribers to 4G from 2G and increased usage of telephony services is expected to result in improvement in industry ARPU (excluding BSNL) to around Rs 170 by the end of FY2023...," Icra said, noting that Indian telecom services industry is on the brink of a technology upgrade to 5G.

Ankit Jain, Vice President and Sector Head, Corporate Ratings, ICRA Ltd, mentioned that the regulator has come out with recommendations of relaxed payment terms, which allow telcos to pay for the spectrum in 20 installments thus ensuring very low upfront outgo.

Jain further added: "This also avoids any dent in the liquidity position and is also likely to boost participation. This makes the basis for ICRA's assumption of the participation in the upcoming spectrum auction to be around Rs 1.0-1.1 lakh crore, in which the upfront payment is likely to be close to Rs 10,000 crore only."

As per ICRA , while the upfront payment will be low, the participation will lead to an addition in deferred spectrum liabilities, and in turn, the total debt of the industry.

"Debt continues to remain a vulnerable point for the industry. Icra expects industry debt levels to increase to around Rs 5.7 lakh crore as of March 31, 2023, before moderating to Rs 5.3 lakh crore as on March 31, 2025," ICRA added.

(With PTI Inputs)