Spectrum trading to aid consolidation in telecom sector, allows monetisation of assets: Ind-Ra

Spectrum trading is likely to aid consolidation in the telecom sector and allow for the monetisation of assets from unutilised service areas, says India Ratings and Research (Ind-Ra).

The industry could see emergence of four pan-India players (Bharti Airtel Limited, Vodafone India Limited, Idea Cellular Ltd and Reliance Jio Infocomm Limited), assuming they will retain spectrum in all licensed service areas (LSAs) while other players may maintain strategic regional presence by trading their spectrum holding in some LSAs. Currently, there are more than six to seven operators holding spectrum in each of the LSA, of which two to three hold a miniscule market share.

Spectrum trading to aid consolidation in telecom sector
Spectrum trading can help operators choose LSAs where they want to retain their presence and grow market share, while exiting other LSAs. Trading of spectrum will also help unlock funds stuck in the form of unutilised spectrum, which can be better used to grow infrastructure in LSAs of strategic importance.

Therefore, spectrum trading can help in efficient allocation of this natural resource compared with auctions. Auctions have a price uncertainty, and escalations in bidding prices similar to the past may prove the acquisition of additional spectrum to be more expensive. The spectrum trading guidelines could also provide marginal players an exit from the industry. Videocon Telecommunications Limited and Quadrant Televentures Limited have witnessed limited market share in a highly competitive market.

Ind-Ra estimates spectrum trading to lead to a strategic exit by operators in some LSAs; Aircel may consider exit in Gujarat, Haryana, Kerala, Madhya Pradesh, Reliance Communications may look to monetise its underutilised spectrum in Jammu and Kashmir, North East and similarly Tata Teleservices may evaluate exit options for Himachal Pradesh and Rajasthan.

Ind-Ra does not expect the transaction tax of 1 per cent of the transaction amount as transfer fee as a material deterrent for spectrum trading. The license fee and spectrum usage charges however on the transaction proceeds of the seller as part of the adjusted gross revenues could take away 12 per cent-15 per cent of the seller's proceeds.

Read more about: telecom, spectrum
Story first published: Friday, September 11, 2015, 9:10 [IST]
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