5G spectrum reserve prices may be cut in relief to telcos

Telecom analysts expect a sharp cut in reserve prices for 5G spectrum in the auctions slated for later this year. “While the reserve price for pan-India 5G (2.6 GHz) is not known, we estimate it could be in the range of $5-6 billion,” said analysts at BofA Securities in a note to clients on Thursday.

In 2018, the Telecom Regulatory Authority of India (Trai) had recommended the base price of 5G spectrum at $7 billion for pan-India airwaves in the 3.3-3.6GHz band.

BofA added that Bharti Airtel and Reliance Jio would likely bid for pan-India 5G spectrum and Vodafone Idea may bid selectively. “The 5G spectrum cost would likely be cut from $7 billion for 100MHz in 3.3-3.6GHz bands besides extension of licence tenure to 30 years from current spectrums for 20 years,” analysts at brokerage CLSA said in a separate note dated 6 January.

Analysts said while 4G spectrum purchases of $11 billion in 2021 were because of renewal compulsions of operators, 800MHz for Reliance Jio, the success of the 5G auctions will hinge on the price of the airwaves.

As India is a mobile-first country, lower 5G prices will boost the internal rate of return and spectrum purchases will multiply opportunities, alongside ongoing sector improvements and strong growth, they said.

Telecom service providers have sought rationalization in prices for 5G airwaves, which they think are exorbitant. The telecom regulator initiated the consultation process on fixing the reserve price for airwaves in the 5G bands in November.

The government aims to hold auctions by March, but there will likely be a delay as the consultation would take time to complete. In 2021, 63% of the spectrum in the auction was unsold and, historically, the government has cut prices by 30-40% if there was no demand in the previous auction, analysts at CLSA noted.

In an interview last month, communications minister Ashwini Vaishnaw said the government was aware of the issues faced by the industry, primarily high spectrum prices, and may consider providing relief as telecom services, including 5G, would be a source of ‘public good’ rather than a revenue maximization tool.

“It (telecom) is not just a revenue maximization thing (tool), but there is certainly an element of public good in the telecom sector. In fact, some countries have taken very extreme steps of even de-licensing and making it zero-cost. During covid, everybody, including Trai and industry, realizes that it’s telecom that is supporting everything,” he had said.

Brokerages said the three carriers, Bharti Airtel, Vodafone Idea, and Reliance Jio, are set to report an improvement in revenues in the December quarter, led by a rise in average revenue per user (Arpu), with the full impact of tariff hikes expected in the March quarter.

“We expect Jio, Airtel, and Vodafone Idea to report Arpu to be up 6%, 4%, and 6% on-quarter at about ₹149, ₹163, and ₹116, respectively,” analysts at ICICI Direct Securities said.
Revenue of Reliance Jio, India’s largest telecom services provider, is expected to rise 3.5% sequentially to ₹19,387 crore, while Bharti Airtel’s India wireless revenue is expected to rise 6% to ₹16,111 crore, and Vodafone Idea’s revenue is expected to be around ₹9,835 crore, an increase of 4.6%.

Aided by the tariff hikes, Airtel and Jio are expected to report profits of ₹1,240 crore and ₹3,675 crore, respectively, while Vodafone Idea is expected to post a loss of ₹6,993 crore. Livemint