Airtel Biggest Beneficiary of Lower Spectrum Usage Charges

Airtel IndiaCurrently in India, the current spectrum usage charges (SUC) is escalation based on spectrum holdings. On average, operators pay SUCs in the range of 3.6% to 5.6% of adjusted gross revenue (AGR). We believe that lower SUCs (if implemented) will partly offset the spectrum renewal charges to be paid by the operators at the time of licence renewals. Airtel pays the highest SUCs in the industry and would be the biggest beneficiary of a lower SUC regime. In a scenario of a flat 3% SUC (as recommended by the TRAI), Airtel’s potential NPV benefit is Rs20/sh (vs. Rs39/sh for spectrum renewal charges). However, if a flat SUC is pegged at 5%, then the potential benefits for Bharti and Idea will be reduced to Rs5/sh and Rs1/sh, respectively.

Despite significant Reserve Price cut (esp. in Metro/ A circles), we do not think the entire 1800-spectrum (total of 285MHz pan-India) would get sold, given limited appetite and contiguity issues. Separately, for the renewal licenses, TRAI recommends no reservation of spectrum in 900/ 1800 auction; we expect GSM leaders to substantially win back their 900-spectrum in Metros, given reasonable RPs and their stronger financial position (cash flows, leverage) relative to potential challengers (barring Reliance Jio).

The Following Chart Shows the 1800Mhz Spectrum reserve Prices for Auction in India
Spectrum Pricing India