Indian telcos may not bid aggressively in 5G auctions

5G auctions India
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Indian telecom operators like Reliance Jio and Bharti Airtel may not bid aggressively in the upcoming 5G spectrum auction due to high base prices and ample availability of spectrum, industry analysts said.

Analysts said that despite reserving 40MHz in the 3,300MHz band for public sector telcos, there is adequate spectrum (330MHz) for the three operators, as the spectrum cap is set at 40% or 130MHz, which would limit the scope for aggressive bidding.

Indian telecom regulator, TRAI, has also reserved 400MHz in the 26GHz band for public sector telcos and has deferred the auction of 27.5-28.5GHz spectrum band pending TRAI’s recommendation on co-existence of 5G services with space-based communication services.

Historically, in a spectrum scarce era, with a large number of telcos scouting for limited spectrum, the industry saw players over-spending on auctions in a bid to reserve good quality spectrum to create an edge in network quality and customer experience.

“…now with merely three players in the market with only two of them looking for serious investments, and the government’s plan to offer spectrum through an annual schedule, there seems limited need to invest at a high price. Yet, our past experience underscores the risk of Telcos engaging in heavy investments to match the competition. This could be a key overhang on stocks. VIL particularly could participate to some extent given the lower initial investment,” Motilal Oswal said.

“330Mhz of the mid band spectrum of 3300MHz is available in every circle and an operator requires only 100Mhz for pan India roll out. This means more than adequate spectrum is available for the three operators and hence we don’t expect a bidding war in the auction,” JP Morgan said in a separate note.

JP Morgan analysts said that telcos may be selective on the quantum this time given the likely demand-supply imbalance and annual auctions.

India could see a gradual 5G roll out over the next 2-3 years in India. Overall, Airtel and Jio are well positioned to participate in the upcoming 5G auctions while VIL’s ability to effectively compete in 5G auctions is constrained due to its weak balance sheet, Credit Suisse said.

Analysts are also of the view that auctions could also be impacted by the government’s decision to allow direct spectrum allotments to enterprises for captive 5G networks. They said that there is a business uncertainty around future 5G enterprise revenue streams for telcos which could influence their bidding strategy.

“…enterprises being permitted to directly obtain spectrum to set up CNPNs (captive private networks). The latter is a more concerning situation given that the 5G opportunity is a play on enterprise solutions rather than retail consumers…,” Kotak said.

As per analysts, telcos could buy around 400-500 units of 26 GHz mmWave spectrum, given the ample supply of these low-priced 5G airwaves, and since they won’t attract any SUC.

They added that telcos might yet again give 700 Mhz a miss, saying that its pricing even after a 40% cut from the 2018 levels was still too expensive.

India’s telecom secretary K Rajaraman has said that 5G rollout is expected to begin in August once the auctions are conducted in July. “The government has announced the 5G spectrum auctions, and the rollout is expected from August this year,” he said at an industry event on Thursday.

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