Trai may cut 700 Mhz, 3.3-3.6 Ghz base prices for 5G spectrum sale in 2022: Fitch

Global ratings agency Fitch expects the Telecom Regulatory Authority of India (Trai) to cut base prices of coveted airwaves in the 700 Mhz and 3.3-3.6 Ghz bands and expects the much awaited 5G spectrum sale to happen next year.

“We expect 5G spectrum is likely to be auctioned in 2022, and for commercial launch in 2023, and we expect the (sector) regulator to reduce the reserve price for future auctions of 700 Mhz and 3.3/3.6 Ghz bands, which can be used for 5G,” Fitch Ratings said in a media statement Monday.

Back in September, the Department of Telecommunications (DoT) had set the ball rolling for the next auction by sending a reference to Trai, seeking fresh base prices for the gamut of airwave bands, including 700 Mhz, 3.3-3.6 Ghz and new ones such as 600 Mhz and the precious mmWaves like 26 Ghz and 28 Ghz that support both 5G mobile and satellite services.

Fitch also estimates that Bharti Airtel and Reliance Jio will boost their revenues by around 8-12% in FY22 and also report stable operating margins, propelled by growth in their respective mobile and fixed broadband businesses.

“We expect Bharti and Jio’s 2022 revenue to grow by around 8%-12% and the Ebitda margins to remain stable, on growth in (their) mobile and fixed-broadband segments,” Fitch Ratings said in a media statement .

It also estimates that the telecom industry’s monthly average revenue per user (ARPU) will rise 15%-20% on-year (from Rs 129 in FY21), on the back of likely “headline tariff hikes and growing migration of 2G users to higher-priced 4G plans”.

Fitch, though, sees loss-making Vodafone Idea’s revenues shrinking due to more customer losses and expects its Ebitda to remain stagnant, despite cost savings and lower regulatory taxes. “Deferral of regulatory dues is unlikely to be sufficient to allow Vi to improve its competitive position, given its much lower capex investment and weaker network strengths.”

Both Vi and Airtel recently accepted the government’s proposal of a four-year moratorium on spectrum and adjusted gross revenue (AGR) payments as part of a relief package for the debt-laden telecom sector.

Fitch also estimates Jio and Bharti will continue to increase their combined revenue market share (RMS) for private telecom operators to the 80%-82% level — from around 77%-78% in June 2021 — at Vi’s expense as the latter is estimated to continue losing around 50-70 million subscribers annually.

It also estimates “Bharti and Jio’s 2022 mean FFO (funds from operation) net leverage will improve to 2.2x-2.5x (2021F: 2.6x-2.8x), driven by higher cash generation, equity injections and lower regulatory dues”.

Airtel’ net leverage, it added, would “improve to 1.7x-2x in FY22 on a planned $2.8 billion equity injection and deferral of AGR and spectrum dues by the Indian government by four years from 2021. Vi’s net leverage, though, it said would “continue to worsen on negative FCF as its Ebitda is insufficient to fund interest costs”.

Airtel recently raised around Rs 5,247 crore as the first tranche of its Rs 21,000 crore rights issue, proceeds of which will be used to build a war chest to clear statutory dues, expand 4G networks and prepare for an upcoming 5G auction, likely next year.

According to Fitch, “excluding 5G spectrum payments, the average 2022 mean FCF (free cash flow) is likely to turn positive for Bharti and Jio despite high capex/revenue of 28%-33% in 2022 . It added that “Bharti’s FCF generation would benefit following the deferral of AGR and spectrum dues”. Jio, by contrast, has not opted for deferral of statutory dues.

Fitch added the “prospective simplification of the definition of gross revenue to exclude non-telecom revenue and abolition of spectrum usage charges for future spectrum purchases would also boost (telco) cash flows”.

The DoT has reset the definition of AGR as part of the relief package announced to revive the sector. It did so by excluding a host of non-telecom income items under the new definition of adjusted gross revenue (AGR).