CRISIL reaffirms telecom operators’ ratings after 3G auction

CRISIL has reaffirmed its outstanding ratings on telecom players on conclusion of the auction for 3G spectrum blocks.

The rating agency believes that availability of 3G spectrum will positively impact the business profiles of telecom players, enabling them to protect their current market positions, and offer value-added services.

It said, "The bidding strategy, and the final spectrum fees paid by each CRISIL-rated telecom player is in line with CRISIL's expectations.
As expected by CRISIL, its rated telecom players have followed a circle-specific strategy in thebidding process, with their overall goal being to defend their market positions in their key circles.

Idea Cellular Ltd, for instance, has won 3G spectrum blocks in all circles where it ranks among the top three players. Bharti Airtel Ltd and Vodafone Essar Ltd have won spectrum blocks in about 70 per cent of the circles where they rank among the top three players. Tata Teleservices Ltd, on the other hand, won spectrum blocks in most category-B circles, and in three of five category-A circles.

Winning 3G spectrum blocks in their key circles will help the players retain their market positions, reduce congestion in traffic through use of additional spectrum, and thereby, enhance the quality of their services. Their business risk profiles will, therefore, be positively impacted, even though 3G service revenues are unlikely to grow significantly in the next two years.

The final spectrum fees, and the associated capital expenditure over the medium term, have been inline with CRISIL's expectations for each rated player. Given that these investments will primarily be debt funded, the players' financial risk profiles are expected to be under pressure over the mediumterm. However, this pressure will be offset by strong cash flows from the players' pan-India operations, and in a few cases, by support from parents.

The auction for broadband wireless access (BWA) is scheduled to begin shortly. CRISIL expectsinvestments associated with the auction of BWA spectrum to be significantly lower than the 3Gspectrum fees.

However, CRISIL will closely monitor the outcome of the BWA bidding process andits impact on the ratings of entities in the telecom services sector.