India telecoms debt rises on record spectrum spend

India will net a record Rs1tn ($16bn) windfall from intense bidding for the country's latest spectrum auctions, but at the cost of sharply higher debts for telecoms operators and looming price hikes for nearly 850m mobile subscribers.

Market leaders Vodafone, Bharti Airtel and Idea are fighting to retain existing licences in the contest, which is expected to conclude this week, while also picking up badly-needed new spectrum in a process complicated by the participation of billionaire Mukesh Ambani's new cash-rich Reliance Jio telecoms venture.

Although the auction is ongoing, the battle for the most expensive and desirable spectrum has largely concluded, analysts say, after two weeks of frantic bidding that have made this the most expensive competition in Indian telecoms history, easily eclipsing earlier estimates of Rs800bn ($13bn).

Both Bharti and Vodafone have previously attacked India's government for doing too little to help spectrum-starved operators, but industry figures said the leading players were likely to be satisfied with their spectrum hauls, if not the prices they had to pay to win them.

The UK's Vodafone, the second-biggest mobile group by revenue in India's market, is set to be the highest spender, investing about $4.9bn to guarantee it retained all its existing licences, according to broker India Infoline.

Idea and Bharti are likely to be the next biggest participants, spending about $4.7bn and $4bn respectively. Mr Ambani's Reliance Jio service, which is due to launch later this year, is investing around $2.3bn, while Telenor of Norway has also tried to rejuvenate its struggling Indian division, spending roughly $750m.

The companies declined to comment until the auctions are formally concluded, but analysts said the record sums invested were now likely to leave Indian operators among the most indebted in Asia.

"Debt servicing is going to go up and balance sheets will be stressed," said Romal Shetty, head of telecoms at KPMG India. The auctions would add close to 50 per cent to the balance sheets of Indian telcos which already had cumulative net debt levels of around $40bn, he added.

Higher debts in turn are likely to mean sharp price rises in a country that pioneered ultra-cheap mobile calls to suit India's poorer mass-market, but where operators have recently struggled to sustain previous growth levels in the face of bitter price wars and regulatory battles.

"India has some of the most expensive spectrum in the world and not justified by the fact that India still has the cheapest tariffs in the world - prices have to go up," said Nitin Soni, a director at Fitch Ratings.

This year's auctions, which sold off a range of spectrum suitable for traditional voice and faster data services, are set easily to surpass India's most expensive previous contests, which raised $14.5bn and $10bn in 2010 and 2014 respectively.

The result may also now finally prompt a long-mooted market consolidation, according to Deepti Chaturvedi of broker CLSA, in a country that still boasts more than half a dozen major telecom companies.

"India is the last of the markets which is yet to see big consolidation. This auction will accelerate that process," she says. "The market will be dominated by a small number of top payers."

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