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Big Spends - Post auctions, telcos plan major capex

July 15, 2010
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The past year witnessed operator margins taking a hit following a bruising price war and growing competition with the launch of services by several new players including Etisalat DB and Unitech Wireless. However, the recently concluded 3G and broadband wireless access (BWA) auctions have spurred telecom operators to plan extensive capex for the current fiscal year (2010-11).

Market leader Bharti Airtel is targeting a capex of $1.5 billion-$1.7 billion for network expansion to make it 3G compatible. Following its recent acquisition of Kuwait-based Zain Telecom, the company is focusing on its African operations, and has earmarked a capex of about $800 million for the same. This is aside from its capex for its Sri Lankan and Bangladeshi operations.

Meanwhile, Reliance Communications (RCOM), which has been witnessing a fall in its margins over the past few quarters, is undertaking several measures to survive the growing competition. It is planning to sell 26 per cent stake, valued at Rs 90.5 billion, to pay its debt and expand its network to enable 3G service rollout. The company has also demerged the tower assets of its subsidiary, Reliance Infratel, to GTL Infrastructure Limited. The cash generated from this is being used to pay for the 3G licences obtained for about Rs 80 billion. However, despite having the lowest capital intensity among the established players in the industry, the company has prepared an expansion plan, Edge 2010. Under this, it has earmarked a capex of Rs 63 billion as the capex for the year, to be used for expanding its presence in telecom, direct-to-home and broadband.

Another major operator, Idea Cellular has planned an investment of Rs 30 billion for 2010-11, which excludes the expenditure the company will incur on rolling out its 3G services. The company has already received approvals to borrow Rs 94 billion and has tied up Rs 70 billion. In addition, Idea has Rs 14 billion worth of internal cash reserves as well as the Rs 5.5 billion it had lent to Indus Towers, which is expected to be recovered soon.

Tata Teleservices Limited (TTSL), on the other hand, plans to invest less than Rs 10 billion towards the expansion of its 2G and 3G footprint in the current fiscal year.Aircel, however, will be spending Rs 84 billion to accelerate its expansion and increase its subscriber base from the current 31 million to 100 million by 2012.

Not to be left behind, the state incumbents have also planned significant investments. While Bharat Sanchar Nigam Limited (BSNL) has earmarked Rs 148 billion as capex for 2010-11, a third of which will be utilised for strengthening its mobile infrastructure, Mahanagar Telephone Nigam Limited (MTNL) plans to allocate Rs 13 billion.

Meanwhile, the new entrants in the Indian telecom space have also set their targets. Uninor has earmarked Rs 155 billion to be spent between 2009 and 2018 towards rolling out its 2G operations on a pan-Indian basis. S Tel, the only new entrant to obtain 3G spectrum, will be spending Rs 7 billion primarily towards the payment of its 3G spectrum and the rollout of 3G services in the three circles where it has won the licence. Meanwhile, Sistema Shyam TeleServices Limited has refrained from making any estimation for the future.

Therefore, the stage is set for the launch of 3G telephony in the country with operators laying out elaborate plans for the next one year. It, however, remains to be seen whether their plans materialise and help them cope with the changing dynamics of the Indian telecom market.

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