While India is behind the curve as of now for 5G (67 countries have already deployed), 2022 is the year when the auction is likely to be held second half of the year. However, ahead of the same, telcos have asked for cut in spectrum prices by 90%, at least a 5-6 years of moratorium on the payments, zero upfront payment and allowing them to pay the bid amount over 25 years Thus, the response to the above will be key for overall spectrum demand, in our view. For Budget per se, major decision on 5G might not be seen but any decision on rationalising levies, including USOF fee could be a monitorable.
The sector has witnessed major support in the form of government relief in spectrum/AGR payment moratorium along with rationalisation of AGR definition, easing bank guarantee requirement etc. in September, 2021. Major driver for 2022, in our view, will be recent tariff-hike which will result in~20% ARPU growth and ~22-27% EBITDA growth for telcos in FY23. On a medium to long term basis, 5G is expected to provide opportunities for operators to charge a premium for their services and drive a better customer experience with increased uptake in service, eventually boosting the average revenue per user (ARPU). Nonetheless, major game changer will be business use cases over long term, which will be next generation catalyst for digitisation.
Our top picks are Bharti Airtel and Reliance Jio (subsidiary of Reliance Industries).