The telecom companies take a sigh of relief as Government released a new decision of relaxing the cap on the amount of spectrum individual telecom service providers can hold. This relaxation also came with an extended timeline for payments by these companies. This move will ease things for the telecom companies, and their consolidation efforts will see fruition. As we know because of Jio’s strategic pricing moves in the market rest of the telecom companies had to face a haywire situation and their market shares of the network also dived.
Because of Jio’s disruptive move and to counter this act, companies have been seeking a chance to join forces to increase their network share. The game which was between 15 companies in the year 2011-12 has come down just to just 4 players on today’s date. These big 4 include the likes of Telenor and Tata Teleservices joining Bharti Airtel, Reliance Communication selling its assets to Reliance Jio and lastly the two big players themselves Idea and Vodafone merging together to make things happen.
The rule increases the spectrum cap to 35%, which is a 10% increase when compared to the past cap of 25%. Also, there was a band specific cap for the companies to follow earlier, which will now be replaced with an overall cap of 50% which will be applied across 700MHz, 800MHz, and 900MHz bands.
To give you an idea how the distribution of the caps looks like. Bharti Airtel’s spectrum portfolio is at around 2000MHz. It is at 1,860MHz for both Vodafone and Idea combined, and 1640MHz for the Reliance Jio and Reliance Communication merged entity.
To give you a clue about how the existing policies would have hurt the telecom companies it will be enough to say that if the policies would have still been in place, then Idea and Vodafone would have to give away their spectrum in five circles – Gujarat, Haryana, Kerala, Maharashtra and UP West.
This new policy paves the way for these big party mergers and eases their way of retaining these spectrums where they have already established a solid foothold in the past. It is also notable that if the new plan hadn’t been put in place, then these companies would have to give away their spectrums without any compensation from the Government resulting in huge losses.
Now things look different. Like we mentioned, along with the spectrum relaxation the policy also outlines easy timelines for payment which in turn gives telecom players lowest renewal risk among peers. The effective value of the higher cap at the last auction prices is said to be holding somewhere at Rs 70-80 billion.
A relaxation on the payment for airwaves auction has also been decided on by the Cabinet, from 12 years to 16 years with a two years’ interim, to 16 years.
This will drastically help the telecom operators in overcoming their cash flow problems and given that the sector is in a massive debt of just under Rs 5 trillion paired with falling revenue due to subsequently lower prices every quarter, this moves come just at the right time to aid the sector in saving Rs 105 billion in 2018-19 and Rs 500 billion over a period of coming four years.
All the new changes to the rules definitely signal a good future for the telcos, but also it might mean a price related update on Jio’s part. The company might actively seek to up their revenue by bringing revised prices. How this interesting turn of events in the telecom sector pans out is yet to be seen in the quarters to come this year.