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5G Price Exorbitant At $7 Billion Per 100 MHz, Says CLSA

5G spectrum in India is priced at an “exorbitant” $7 billion per 100 MHz, which is nearly four times of that in Korea and will be big drag on companies’ Internal Rate of Return (IRR), according to brokerage firm CLSA.

“Only significantly lower prices will justify above cost IRR and spectrum purchases,” according to a study by the brokerage firm. TRAI has recommended sale of 275 MHz of spectrum in 3.3-3.6 GHz band, implying that individual operators could get 80-100 MHz spectrum in this band. However, at the recommended reserve price of Rs. 490 crore per MHz, operators will have to pay about $7 billion for 100MHz spectrum.

Even with aggressive operating assumptions (capex to sales of 20 percent; incremental margin at 70 percent) at current 5G spectrum prices, incremental investment IRR will be 7 percent. However, the report said that 33 percent lower spectrum cost with same assumptions can boost 5G IRR to 13 percent.

With 4G penetration for Bharti Airtel and Vodafone Idea still at 25-30 percent of subscriber base, and 5G ecosystem nascent, it will be negative for operators to spend over $7 billion on a project offering limited returns. With 275 MHz spectrum available in 3.4-3.6 GHz band and only three operators in play, there is enough supply, it said.

So even if Reliance Jio Infocomm bids in current auctions, incumbents led by Bharti Airtel can purchase spectrum in subsequent auctions. Deferring purchase will likely also lead to a cut in the price of spectrum.

The Telecom Ministry has indicated that 5G trials are likely to start by September and spectrum may be auctioned by the end of 2019.―The Hindu Business Line

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