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The fierce bidding in the broadband wireless auction that ended on Friday is not likely to trigger further value destruction in the already troubled domestic telecom sector. However, the entry of Reliance Industries (RIL) in the broadband telephony may give rise to a tariff war in this highly lucrative segment of the domestic telecom sector.

The impact of immediate cash outflow post-bidding will be limited since big listed players have either opted out of the process or participated only in a few circles. Bharti Airtel, the country’s largest telecom player, has won licences in four circles for a total of Rs 3,314 crore. Its peers Reliance Communications (RCOM) and Idea Cellular decided to give it a pass.

For Bharti, the cash outflow due to broadband is just over 8% of the total investment of Rs 58,000 crore made by the company in 3G licences and in acquiring Kuwait-based Zain Group’s African telecom operations. Some analysts feel that such a small proportion of outflow can be accommodated into the other two bigger payments without extensively stretching the balance sheet.

For both RCOM and Idea, the balance sheets would have no effect of the broadband bids. Given this, net debt — long-term debt minus cash equivalents — as a percentage of operating profit before depreciation (EBITDA) works out to over 3.5 for each of the three players. This means the top-rung of the telecom sector may have to shoulder a similar debt burden.

However, Bharti’s leverage, measured in terms of debt-equity ratio, will shoot up to 1.6 compared with that of one for the other two. Analysts think that this would come down to healthier levels in future once it turns around Zain’s African operations.

Another factor to watch out for is the impact of Reliance Industries’ entry into the broadband fray. Analysts at Networth Stock Broking feel that this would most likely trigger a tariff war in the enterprise segment pulling down the operating margins from existing level of 40-45% for the segment. However, the impact on the overall consolidated margins would not be significant as telcos earn a substantially lower portion of revenue from this segment. In that, RCOM would see lesser impact since its enterprise revenue and operating profit contribute just over 15% to its total revenue.