Debt-led phone war may blow $74 billion hole in India wallet
mumbai — Aggressive price wars that pushed some calls below a penny per minute in India may be catching up with wireless carriers.
Mountains of debt could hinder their bidding for airwaves in next month’s auction, potentially blowing a $74 billion hole in the government’s plans. One operator already said it will sit out the sale starting September 29, and some competitors likely won’t spend on certain wavelengths.
India plans its biggest sale of the spectrum that can reduce buffering on videos and speed up downloads for one billion-plus users in the world’s second-largest smartphone market. The government wants to raise Rs5.6 trillion ($83 billion), yet companies may bid only a small fraction of that because they bought bandwidth the past two years and need cash to fend off billionaire Mukesh Ambani’s newest venture.
“We believe that the spectrum auction is going to be a failure,” said
$83b government wants to raise by the sale of spectrum
Chris Lane, a Hong Kong-based analyst for Sanford C. Bernstein. “Overall, we don’t see carriers bidding like they did in previous years.”
The nation’s 12 wireless companies carry more than $61 billion in debt, and their average revenue per user is declining as customers replace voice calls with apps that use data plans, according to company earnings. That total debt increased 41 per cent since March 2014, according to credit rating agency ICRA.
The auction will be successful and the government has provided spectrum in every band, Telecom Secretary J.S. Deepak told reporters in New Delhi on Tuesday.
Phone calls already are the cheapest among the world’s major economies, Lane said, averaging about two cents a minute now after dropping below one cent.
Further price cuts loom as Ambani’s Reliance Jio Infocomm prepares to begin commercial operations, touting a network offering only fourth-generation, or 4G, service. Jio has spent at least Rs1.5 trillion on coverage across the nation. The company declined to comment concerning the auction.
In anticipation, carriers including Bharti Airtel, the nation’s largest, and Idea Cellular slashed data charges. Some also added spectrum after the government eased rules to allow sharing or trading in airwaves.
“Carriers are stuck in a hard place,” said Suniil Pachisia, vice president at brokerage Pratibhuti Viniyog in Mumbai. “With the entry of another operator, the price wars may get fiercer, and carriers may not want to put more money on spectrum but rather on ensuring their survival.”
As a result, carriers may spend just Rs650 billion, or $9.7 billion, in the upcoming auction, ICRA estimated. — Bloomberg