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The D-Day is here-5G auction to be held tomorrow, July 26

Reliance Jio Infocomm Ltd, Bharti Airtel Ltd and Vodafone Idea Ltd are the leading bidders to secure bandwidths for rolling out 5G networks starting July 26, when the government will put airwaves worth ₹4.3 trillion on sale.

The spectrum auction will also see new entrant Adani Data Networks pick up spectrum for launching its captive network and deploying networks for enterprises.

The four companies have together submitted earnest money deposits of ₹21,800 crore, allowing them to bid for spectrum worth ₹2.11 trillion if fully utilized.

Telecom service providers are unlikely to bid aggressively across the 10 bands, and 5G bands may see sales at base prices, primarily due to the 39% cut in spectrum base prices by the telecom regulator and easy payment terms of 20 equal instalments set by the government.

Bharti Airtel and Reliance Jio are expected to buy substantive amounts of the mm-wave and 3.5GHz 5G spectrum, the core 5G bands, needed for the deployment of 5G services. Projections are they will buy 800MHz in mm-wave and 80-100MHz in 3.5GHz spectrum.

The 700 MHz band will be a key differentiator. Priced higher, and not picked up in the past auctions, this year analysts expect Jio to be aggressive, and bid for a substantive portion. That might delay Jio’s plans for a potential IPO since it will increase their debt to EBITDA ratio, but will give it an edge over Airtel as this will reduce the capital expenditure to lay out networks and improve coverage (over long distances and indoors).

In the 2021 auctions for 4G spectrum, Reliance Jio utilised 77.9 per cent of their earnest money deposit, while Airtel used 87.7 per cent. A telecom operator can spend up to 9X the EMD in the auctions.

Some Industry Comments

Jefferies. “We expect spectrum to be sold near reserve prices and estimate demand to range between $13-20 billion vs $54 billion worth of spectrum being sold.”

Bernstein. “A substantial reduction in overall payment terms will come from the removal of spectrum usage charges (SUC) for auctions and no upfront payments.”

IIFL Securities. “We expect spectrum worth ₹1.14 trillion to be bought by Reliance Jio, Bharti Airtel and Vodafone Idea in the 3.5GHz, 26GHz, 900MHz and 850MHz bands. The 3.5GHz band is set to be the most popular among carriers, where nearly 330 units of airwaves are available for purchase at ₹317 crore per unit.”

Reliance Jio is likely to pick up 100 MHz in this band, while Bharti Airtel is expected to take up about 50-80 MHz in key circles. Vodafone Idea is likely to pick up about 40MHz in its strong circles of Mumbai, Delhi, Gujarat and Kerala. We now expect telcos to bid for adequate quantities of this band, especially as they would not want to take the risk of leaving large quantities of spectra for future auctions, where there is a potential risk of participation from the Adani Group.

Jio may bid for the entire 850MHz spectrum on offer as it extends its lead in the low-frequency spectrum versus peers. Airtel and Vodafone Idea are expected to pick up some spectrum in the 900MHz bands in circles where they need to add capacities to support 4G services.

The 26GHz band is likely to see the most meaningful participation, with all three carriers expected to take up to the maximum permissible limits.”

Nomura. “India’s telecom sector could end up as a virtual duopoly once again. We expect Bharti Airtel and Reliance Jio to buy over 1000MHz pan–India in the band, while Vodafone Idea may take in half the circles.”

UBS. “High-end subscribers of VIL might move in the absence of a meaningful 5G launch by the service provider.”

CT Bureau

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