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Telcos' debt to rise post spectrum purchase: Report

The debt levels in the Telecom industry is expected to rise further even though the total spectrum purchase is only around 20 per cent of the spectrum value that was put up, according to a report by Acuite Research & Ratings.

Updated Mar 10, 2021 14:09 PM

Telcos' debt to rise post spectrum purchase: Report

"The debt-coverage indicators will continue to remain weak due to significant AGR obligations coupled with the payments to be made to acquire the spectrums bid for in the auction," it said.

This may keep the debt to EBITDA levels high (at a standalone level) despite improvement in operating margins, added the report.

It noted that both Reliance Jio and Bharti Airtel have put their focus on strengthening of its network coverage capacity to facilitate a stronger penetration of 4G services which will help them to improve the quality of services and facilitate both acquisition of new customers and upgradation of existing ones from 2G/3G to 4G.

"While Vodafone Idea entered this auction with largest spectrum holding, its focus remained on renewal of existing spectrum. However, the company bid for only 11.80 MHz of spectrum possibly given its financial position and the steady drop in its subscriber base," it said.

As per the report, given the increasing transition of the customer base to 4G network and the higher demand for data services which will be facilitated further by the concluded spectrum auction, the industry ARPUs and the operating margins are expected to improve over the medium term.

The consolidation in the industry with two stronger players and a relatively weaker player in terms of financial performance, will also facilitate a moderate increase in the telecom tariffs going forward.

"Nevertheless, Acuite expects the financial flexibility of the industry to be partly constrained (except for Reliance Jio given the strong group support) given the high direct debt as well as deferred obligations to the DoT," the report said.

It added that while the players may launch 5G services in a limited manner in the near term by optimising some of the existing spectrum, a comprehensive 5G roll out is set to get delayed beyond 2022 given the modest capacity of the incumbent players to bid aggressively in the upcoming spectrum auctions specifically for 5G networks.

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