3G investments unlikely to impact Crisil-rated telcos

Rating agency, Crisil, on Friday said that the proposed investment towards 3G auctions are unlikely to impact credit profiles of Crisil-rated telecom operators.

"The credit risk profiles of Crisil-rated telecom operators are expected to remain unaffected. This is because the business risk profiles of these players will improve if they obtain 3G spectrum blocks for their key circles," the Crisil report said in Mumbai on Friday.

Also, the incremental expenditure incurred by players towards procuring 3G spectrum blocks is likely to be manageable, given the large capital expenditure programmes already being executed by these telecom operators to expand their geographical presence, it said.

Large debt funding of the additional investment on 3G spectrum licenses may, however, exert pressure on the financial risk profiles of Crisil-rated players over the near-to-medium-term. However, it will be offset by their strong cash-flows, underpinned by a mature pan-Indian presence for most rated players or support from their parents, the report said.

On the other hand, if the amounts bid by the Crisil-rated telecom service providers in the auction for 3G spectrum licences exceed its expectations and if these large investments are funded primarily through debt, the credit risk profiles of the players may come under pressure, it said.

Crisil will closely monitor the outcome of the bidding process and its impact on the ratings of entities in the telecom services sector, the report said.

Success in the 3G auction will enable telecom operators to offer value-added data and video services in future. However, Crisil does not expect players' revenues from these services to grow substantially over the next two-years, it said.

Availability of the 3G spectrum will ease the constraints on the 2G spectrum to the voice services of telecom service providers. This will help telecom operators that succeed in the auction to improve the quality of their services, while maintaining strong subscriber volume growth in their existing voice services, the report said.