The auction for over 2300 MHz of airwaves—valued at Rs 3.92 lakh crore at base price—though is likely to see limited bidding intensity for spectrum worth less than Rs 48,000 crore, with Jio and Airtel expected to be the main players.
From the upcoming spectrum auction, the government is expected to net less than Rs 48,000 crore. Around a fourth of this could come into the government coffers this fiscal itself, as upfront payment.
With the three telcos putting their hats in the ring, markets expect some aggression from Jio and Airtel mainly, now that they both have announced their 5G prowess.
Although the Department of Telecommunications (DoT) is not auctioning the expensive 5G airwaves in this tranche, bulking up existing 4G spectrum will allow telcos to launch 5G services immediately in those bands, without waiting for sale of airwaves in the 3300-3600 MHz bands earmarked for the next generation technology.
Jio and Airtel were initially expected to spend Rs 20,000 crore and Rs 10,000-15,000 crore respectively, but now the markets estimate the two telcos to spend 15-20% on additional 4G airwaves. This investment will go in select bands in the metro and category A circles, where 4G spectrum assets can now be deployed for future 5G use quickly.
Vodafone Idea, financially the weakest of the three private telcos, is unlikely to participate meaningfully in the sale.
“We consider the upcoming spectrum auction to be an event which could help Jio and Bharti fortify their 5G positioning by acquiring good magnitude of 1800 and 2300 MHz (bands that could be used for 5G),” BofA Securities said in a report.
“Conversely, we do not expect Vodafone Idea to be in a position to bid for 5G bands given its weak balance sheet. This should help Bharti/Jio have sustainable advantage in the long run,” it added.
The brokerage expects pressure on Jio to renew its 800 MHz spectrum while Airtel will buy spectrum in 1800 and 2300 MHz to have a contiguous footprint.
“We think bidding intensity will likely pick-up in 2300 MHz as Jio will likely also bid; and Vi is likely to show limited participation, given funding issues/weak balance sheet,” said the brokerage in its report.
The spectrum auctioned this time is a mix of renewal spectrum and new spectrum in select bands like 700 MHz, 2300 MHz and 2500 MHz. There may not be much action in the 2100 MHz as both Airtel and Vi have adequate airwaves in that range and Vi has some in 2500 MHz as well. The 700 MHz bands may again go unsold, like it did in the previous auctions, four years ago.
However, the auctions may not be a complete damper.
“While we do not expect material overbidding (except in select 1800/2300 MHz circles), we believe the larger quantum of spectrum acquired by Jio/Bharti may surprise the market. Senior management is likely to think long-term, but it could impact near-term share price performance,” said Bofa in its report.