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Fitch assigns negative outlook for telecom sector

Weak balance sheets due to hefty outgo of funds for new licences will reflect negatively on the 2013 outlook for the country's scam impacted telecom sector, credit rating firm Fitch said on Wednesday.

twitter-logoPTI | December 5, 2012 | Updated 22:22 IST

Weak balance sheets due to hefty outgo of funds for new licences will reflect negatively on the 2013 outlook for the country's scam impacted telecom sector, credit rating firm Fitch said on Wednesday.

"The outlook for the telecom sector in 2013 is negative, reflecting expected weaker balance-sheets due to regulatory payments to re-acquire licences and continuing limited ability to raise tariffs, given the high level of competition," Fitch said in a research note on Wednesday.

Government decision to change spectrum-allocation policy from a fixed-cost regime to an auction of all existing and future spectrum assets will significantly raise the cost of licences and spectrum, which will weaken the credit metrics of most telecom firms, if funded by debt, Fitch said.

On February 2, the Supreme Court had cancelled 122 telecom licences on grounds of impropriety in policy implementation. They were allotted by the then telecom minister Andimuthu Raja in 2008 on first-come-first-served basis at throw-away prices to a few players despite having as many as 40 players waiting in line.

Subsequently, the apex court directed the government to re-auction all the 122 cancelled licences.

The government set the base price for auction for all- India spectrum at Rs 14,000 crore, considered to high by the telecom firms. It could garner only Rs 9,704.64 crore on muted response from the industry.

Fitch said the top four operators by revenue market share - Bharti Airtel (Bharti, BBB-/negative), Vodafone, Idea Cellular and RCom - will have to pay significant amounts for a one-off charge for excess spectrum (above 4.4MHz) and re-farming as well as future auctions of radiowaves.

Fitch believes payment of one-off charge by telecom firms and re-farming costs will happen in 2013.  

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