Bharti and Jio aggressively prepay spectrum fees

In a move that signals its financial soundness and resilience, Bharti Airtel has prepaid Rs.8,815 crore to the telecom department. This substantially clears Bharti Airtel’s dues relating to airwaves bought in the 2015 sale. In the previous 4 months, Bharti Airtel has already cleared deferred spectrum liabilities to the tune of Rs.24,334 crore.

This takes the total prepayment of deferred spectrum liabilities by Bharti Airtel in FY22 to Rs.33,149 crore. This is substantial early prepayment by Bharti Airtel because the 2015 airwaves dues were only due by fiscal years FY27 and FY28. Bharti has prepaid the spectrum dues at least 6 years in advance. 

For Bharti Airtel, this will result in sizable interest cost savings and improve the company’s cash flows. In the third quarter, Bharti had seen a spike in costs leading to lower profits.

This savings will help Bharti ramp up 4G coverage and prepare to participate in the upcoming 5G spectrum sale in May and June this year to enhance the quality of its digital offerings.

With a balance sheet that is substantially cleaned up, Bharti has much easier access to low cost funds. Hence Bharti Airtel is focussing on financial flexibility through its capital structure.

This includes optimising cost of financing and capitalising on opportunities to reduce the interest burden on the balance sheet. 

However, Bharti Airtel is not alone in this effort. Reliance Jio has also been aggressive in prepaying its deferred spectrum dues to the government.
 

Reliance Jio had made a payment of Rs.10,792 crore in October 2021 and paid another Rs.30,791 crore as deferred spectrum fees in January 2022 to the Department of Telecommunications, Government of India.

During the current fiscal year, Reliance Jio has already paid a total sum of Rs.41,583 crore by way of advance payment of deferred spectrum liabilities to the government.

This marks full payment of all spectrums allocated to Reliance Jio in the years 2014, 2015, 2016 as well as the spectrum acquired via right to use Bharti Airtel’s spectrum in 2021.

Even as this move cleans up the books of Reliance Jio and Vodafone, it does exert substantial pressure on the third player in the space, Vodafone Idea. The company has been struggling under a mountain of debt and losses and this move will only widen the gap. This is likely to push the Indian telecom and digital space more towards a duopoly status.

However, the government is hardly complaining. During the fiscal year 2021-22, it has already received Rs.74,732 crore as advance payment of deferred spectrum charges. That itself is much more than the Rs.54,000 crore the government had targeted to collect from spectrum auctions.

Hopefully, the additional sum received should help the government revenue pool, partially offset delays in the divestments of LIC and BPCL.