The telecom spectrum allocation has finally come to an end.
Details regarding the winners are yet to declared but media reports indicate that companies with higher revenue share such as Bharti Airtel and Vodafone India have largely been successful in winning the spectrum.
According to Morningstar's equity analyst Piyush Jain, things will get better for the telecom industry as the government also plans to announce guidelines concerning merger and acquisitions, spectrum sharing and trading rules. This will give more clarity on the way ahead and companies which have been unable to win the spectrum would still be in a position to do business.
Existing telecom players will continuously need to spend money over the next few years to upgrade their ageing infrastructure which will eventually increase the need for consolidation in the industry. We believe that Reliance Jio Infocomm will need to compete on pricing coupled with a bundled offering of services. Its entry shall increase the competitive intensity and put pressure on the margins of telecom players. In this scenario, smaller players would largely struggle owing to less subscribers and over leveraged balance sheet. Larger players would be able to take advantage of explosion in data usage.
The competitive landscape in the telecom sector is turning favourable for large telecom companies as they have consolidated their leadership over the last few years. We would therefore see the recent spectrum auction in the above light and would calibrate the returns on invested capital for the larger players after we are able to look at company wise spending per MHz of spectrum.
