“This high cost is credit negative for the country’s telecom operators because it will increase their debt and costs and reduce their ability to fund future expansion,” said the global credit rating agency.

“Although we expect that the companies will raise tariffs in an effort to recover their spectrum costs, we believe the increases will be gradual, leaving the companies’ debt levels bloated for some time,” Moody’s said in its March 30 issue.

Telecom Minister Ravi Shankar Prasad, however, had said recently that as per an analysis shared with him by an expert, “the yearly load on telecom operators is going to be about Rs 5,300 crore…and 1.3 paise per minute call”.

Moodys also said that the growing demand for 3G data services will continue to drive companies’ spectrum cost recovery and it expects operators to maintain rational pricing, rather than cutting prices in an effort to increase volumes quickly.

Government received total payment commitment of Rs 1,09,874.91 crore from seven leading telecom operators in spectrum auction which ended on March 25.

As per the final results, Idea Cellular has made maximum commitment of Rs 30,306.98 crore followed by Airtel at Rs 29,130.20 crore, Vodafone Rs 29,959.74 crore, Reliance Jio Infocomm Rs 10,077.53 crore, Reliance Communication Rs 4,299.13 crore, Tata Teleservices Rs 7,851.33 crore and Aircel of Rs 2,250 crore.

Moody’s said the total price the operators paid for the spectrum is around 35 per cent higher than the government’s pre-set minimum prices and higher than in any previous Indian spectrum auction.

“These payments will cause debt levels to rise significantly for most operators, including Bharti Airtel Ltd. (Baa3 stable) and Reliance Communications Limited (RCom, Ba3 stable), and will limit their ability to make additional investments over the next 12-24 months, possibly slowing the rollout of 3G/4G networks in India,” Moody’s said.

The rating firm said the companies will likely opt to defer their spectrum payments as it mitigates the effect on their cash flow.

As per DoT, Idea will have to make upfront payment of Rs 7,790.1 crore; Airtel – Rs 7,832.58 crore; Vodafone – Rs 6,867.93 crore; Reliance Jio – Rs 2,519.38 crore; Tata Teleservices – Rs 2,013.33 crore; RCom – Rs 1,106.95 crore and Aircel – Rs 742.5 crore.

“We expect Bharti to fund its upfront payment of around Rs 78 billion as well as future payments from cash flow rather than additional debt,” Moody’s said.

It added that Bharti may continue to use cash flow from operations and proceeds from tower asset sales and other monetisation activities to reduce debt levels.

“We also expect RCom to opt for a deferred payment schedule, which will limit its upfront cash outflow to around Rs 1.1 billion. Cash from operations will not be sufficient to meet its funding needs, which include spectrum payments and capital expenses, over the next 12-18 months.

RCom needs to raise Rs 50-60 billion over the next 12 months,” Moody’s said.

It further said that given the RCom’s banking relationships, it does not consider the refinancing risk to be substantial.

“The companies’ high debt burdens may also set the stage for recapitalisation events and further industry consolidation, which would benefit the incumbent operators. Bharti and RCom have a record of raising equity and using the proceeds to pay down debt,” Moody’s said.