The Idea-Videocon spectrum trade is the first of a series of such deals possible in the telecom sector driven by the recent guidelines on spectrum trading and will lead to the rise in debt levels of the acquiring entities, says India Ratings and Research (Ind-Ra).

Idea Cellular (Idea) announced purchase of the 4G airwaves in the Uttar Pradesh (West) and Gujarat circle from Videocon Telecommunications (Videocon) for Rs 33 billion last week, a deal which indicates that Videocon may be looking at exiting the telecom business. This deal will also set a benchmark for pricing the spectrum, as other operators may also look for opportunities to cash out their spectrum holding and retire debt.

The availability of spectrum to launch 4G services in a fast growing 4G ecosystem will enable Idea to participate in the anticipated spurt in demand for data. Similarly, other telecom operators would need to strengthen their spectrum capabilities in order to meet the growth in 4G services and competition from Reliance Jio (R-Jio). Therefore, it is possible that Bharti Airtel (Airtel) and Vodafone India (Vodafone) may show interest in purchasing spectrum in the circles remaining with Videocon.

In Haryana - Vodafone may look to buy Videocon's spectrum for the same reasons.
Ind-Ra notes that Idea's purchase of the spectrum is at a significant premium to the last auction discovered price of similar spectrum. The Rs 33 billion price paid by Idea is 98% higher than the spectrum prices discovered in March 2015 auction (Rs 11.9 billion/5MHz for Gujarat and Rs 4.8 billion/5MHZ for UP West).

Idea has gross debt of Rs 235.4 billion as of September 2015.The current deal can potentially increase the total debt of the company by over 10%.

In case the other telecom players also tend to acquire spectrum at a substantial premium, the debt levels in such companies could increase further. The Indian telecom sector which is witnessing increasing competition in the data space is likely to take on additional capex to sustain growth.

The 800MHz band provides RCom a chance of becoming 4G capable on a superior band and thus potentially providing a better 4G experience than the incumbents thereby challenging their existing market position.