It is a truism that consumers (buyers) ultimately pay for all supplier costs of doing business. So it is that Indian mobile consumers are going to pay for all the spectrum recently purchased by the leading Indian mobile service providers.
That means retail prices are going to climb.
“We believe that telcos are likely to raise prices in response to high spectrum prices,” said Fitch Ratings. Also, “most telcos will report negative free cash flow in 2015 as they need to pay a quarter of the committed amount up front.”
At the same time, the spectrum acquisitions will put pressure on balance sheets and cash flow, limiting supplier ability to invest in networks and compete. That, in turn, means the Indian mobile market will consolidate from about 10 contestants to six in the wake of the recent spectrum auction, says Fitch Ratings.
India's spectrum auction raised US$17.7 billion, a sum that now will have to be raised or shifted from other uses, and will prove too heavy a burden for some contestants, Fitch believes.
The biggest four mobile companies--Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications--won 82 percent of the licenses. Bharti spent about US$4.7bn. Vodafone invested US$4.2 billion.
Idea Cellular committed US$4.9 billion, while Reliance spent US$693 million.
As logical as it might be for governments to view spectrum auctions as a way to raise money, spectrum costs ultimately are paid for by consumers who buy mobile services.
As mobile operators seek to recover the sums spent on spectrum, they primarily will have to turn to retail buyers of mobile service. On the other hand, consolidation might help the surviving carriers raise prices.
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