Airtel, Idea to see $200 mln rise in cash flows in FY19 from govt relief

Kolkata: Bharti Airtel and Idea Cellular are likely to see an estimated $200 million jump in respective cash flows in FY19 with the Cabinet approving select relief measures for the stressed telecoms industry, analysts said.

Cabinet nod for relaxation in spectrum caps, they said, would also help the future Idea-Vodafone merged entity retain all its excess spectrum and also make it easier for struggling fringe players like Aircel sell its airwaves to potentially interested incumbent carriers like Airtel.

Cabinet approval for scrapping of the 50% cap on intra-band spectrum holdings of telcos, according to them, could also pave the way for Reliance Jio to target Reliance Communications’ unsold spectrum in the 800 Mhz band, considered ideal for 4G services.

Market leader Bharti Airtel’s shares fell marginally by 0.55% to Rs 401.20 on BSE, while No 3 carrier, Idea’s dipped 0.13% to Rs 79.50 on the exchange. RCom's shares were down 0.20% at Rs 25.15.

The Cabinet on Wednesday eased spectrum holding caps and also extended the payments tenure for auctioned airwaves from 12 years (including a two-year moratorium) to 16 years, measures aimed to boost consolidation and improve the health of an industry laden with over Rs 7 lakh-crore of debt and battling brutal price wars.

“The estimated $200 million higher cash flows for Bharti and Idea,” following Cabinet approval of relief measures, “will be particularly beneficial for Idea, which has a net debt-to-Ebitda ratio of over seven times, but will not impact Bharti Airtel as it has a fairly strong balance sheet,” Goldman Sachs said in a note to clients.

Morgan Stanley said, Bharti Airtel’s annual spectrum payments would reduce by Rs 1,400-1,700 crore,” which works out to an “over 20% reduction over F2019/20”.

Deutsche Bank, in turn, said the Idea Cellular-Vodafone India merged entity will be “the biggest beneficiary” of the extended tenure of deferred spectrum liability, as its annual instalments for such spectrum payouts “will be 30% lower”.

The Cabinet has increased the overall spectrum holding limit in a service area to 35% from earlier 25% level. It has also backed the Telecom Commission’s call for scrapping the 50% cap on intra-band airwave holdings for telcos, and has instead imposed a separate 50% limit in the combined spectrum holdings across sub-1 GHz bands (read: 700 Mhz, 800 Mhz, 900 Mhz).

Goldman Sachs said the increased spectrum holding limit will allow the Idea-Vodafone merged entity to retain 45.4 MHz of spectrum (across the 900 MHz and 2500 MHz bands) – that it would have had to surrender under the old rules. These airwaves, it estimates, are worth $800 million at current market prices.

According to the US brokerage, scrapping of the earlier 50% limit put on telcos on holding airwaves within each band, post-mergers, will also enable Reliance Jio to target Reliance Communications’ unsold, liberalised spectrum in the 800 Mhz band, considered among the best for 4G services.

RCom reportedly has some 70-odd units of liberalised 800 Mhz spectrum spread across 22 circles that are valid till July-September 2021.

“RCom, which has sold some assets to Jio, continues to retain some of is 800 Mhz spectrum. Earlier, the sale of such 800 Mhz spectrum would have breached Jio’s 50% spectrum cap (in the 800 MHz band), but our calculation shows that with the increase in caps, Jio can now have the capacity for more spectrum in this band,” Goldman Sachs said in a note to clients.

Cabinet nod for easing of spectrum caps, according to the US brokerage, could also equip “Bharti Airtel with the capacity to acquire some of Aircel’s spectrum” in the 1800 MHz and 2100 Mhz bands.

Bharti Airtel Chairman Sunil Mittal, however, had recently told reporters at Mobile World Congress in Barcelona that “Aircel is no longer an option for Bharti as the company is shutting down, switching off networks everywhere”.

Mittal had previously said he would look to buy Aircel if its promoters wanted to sell.