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Telecom companies may hike mobile rates to recover spectrum cost: Moody’s

The global credit rating agency said that the growing demand for 3G data services will continue to drive companies’ spectrum cost recovery

Indian telecom operators are expected to gradually increase rates to recover Rs 1.1 lakh crore they bid for spectrum in the auction that concluded last week, Moody’s said on Monday.

“This high cost is credit negative for the country’s telecom operators because it will increase their debt and costs and reduce their ability to fund future expansion,” said the global credit rating agency.

“Although we expect that the companies will raise tariffs in an effort to recover their spectrum costs, we believe the increases will be gradual, leaving the companies’ debt levels bloated for some time,” Moody’s said in its March 30 issue.

Telecom Minister Ravi Shankar Prasad, however, had said recently that as per an analysis shared with him by an expert, “the yearly load on telecom operators is going to be about Rs. 5,300 crore…and 1.3 paise per minute call.”

Moody’s also said that the growing demand for 3G data services will continue to drive companies’ spectrum cost recovery and it expects operators to maintain rational pricing, rather than cutting prices in an effort to increase volumes quickly. The government received total payment commitment of Rs. 1,09,874.91 crore from seven leading telecom operators in spectrum auction which ended on March 25.

As per the final results, Idea Cellular has made maximum commitment of Rs. 30,306.98 crore followed by Airtel at Rs. 29,130.20 crore, Vodafone Rs. 29,959.74 crore, Reliance Jio Infocomm Rs. 10,077.53 crore, Reliance Communication Rs. 4,299.13 crore, Tata Teleservices Rs. 7,851.33 crore and Aircel of Rs 2,250 crore.

Moody’s said the total price the operators paid for the spectrum is around 35 per cent higher than the government’s pre-set minimum prices and higher than in any previous Indian spectrum auction. “These payments will cause debt levels to rise significantly for most operators, including Bharti Airtel Ltd.

(Baa3 stable) and Reliance Communications Limited (RCom, Ba3 stable), and will limit their ability to make additional investments over the next 12-24 months, possibly slowing the rollout of 3G/4G networks in India,” Moody’s said. The rating firm said the companies will likely opt to defer their spectrum payments as it mitigates the effect on their cash flow.

As per DoT, Idea will have to make upfront payment of Rs 7,790.1 crore; Airtel — Rs 7,832.58 crore; Vodafone — Rs 6,867.93 crore; Reliance Jio — Rs 2,519.38 crore; Tata Teleservices — Rs 2,013.33 crore; RCom — Rs 1,106.95 crore and Aircel — Rs 742.5 crore.

Auction fetches Rs.1.10 lakh crore.

The Department of Telecom has disclosd the results and the names of successful bidders after the Supreme Court granted permission. The auction included airwaves held under nine licences of Idea Cellular, seven each of Reliance Telecom and Vodafone and six of Bharti Airtel that are set to expire Telecos are required to pay upfront 33 per cent of the bid amount for the 2100 MHz, 1800 MHz and 800 MHz bands within 10 calender days of the close of auction. The winning bidders will pay the rest of the amount over a period of 12 years – two years moratorium and then 10 yearly installments.

Rs.1,09,874 cr: Total value of bids that the government got in spectrum auction The spectrum auction conducted in 2010 brought about Rs.1.06 lakh crore, which included Rs.30,000 crore payment from BSNL and MTNL.

Source: The Hindu

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