5G auction: Monetising spectrum gains will be key to telcos’ 5G success

With the auctions for the 5G spectrum successfully concluding on August 1, the focus will now shift to how the operators, especially Jio and Bharti Airtel, go about monetising the significant gains in capacity, said analysts.

The 5G spectrum auctions concluded with a total spectrum of 51,236 MHz being auctioned for more than Rs 1.5 lakh crore. Telcos Jio and Bharti bought a large quantity of spectrum in the key mid-band and high band, with Jio also acquiring spectrum in the sub-GHz band of 700 MHz.

The spectrum acquisitions by players will comfortably enable a pan India 5G launch in the coming months, noted analyst at Kotak Institutional Equities, Hemang Khanna.

“Acquiring spectrum in the 700 MHz band will provide Jio an advantage over Bharti in providing a superior network coverage, which could require Bharti to increase spectrum acquisition in the sub-GHz band in subsequent auctions to match Jio’s network quality,” said Khanna.

Credit Suisse analysts, Varun Ahuja and Viral Shah are of the opinion that given the 700 MHz band’s high propagation characteristics, Jio would be using it as a coverage band for the 5G rollout.   

“Importantly, 700MHz band is emerging as coverage band globally for 5G network in addition to 3.5GHz and 26GHz bands. Consequently, we expect Airtel to also acquire spectrum in the 700MHz band in subsequent auctions as the ecosystem for 5G on 700 MHz matures as there is sufficient spectrum still available in the band (15 MHz paired),” they observed.

BofA Securities’ Sachin Salgaonkar, Payal Gupta and Priyank Mahajan felt that with Jio expected to have the first mover advantage in standalone 5G services, Bharti Airtel will be under pressure to have a network to match it.

“In our view, this raises the risk of Bharti acquiring 700 MHz in the next auction,” they said, adding, “We consider 5G largely to be a duopoly between Jio and Bharti in the consumer space and expect both Bharti and Jio to emerge as dominant players even in the consumer space with bundled 5G offerings.”

Bharti’s calculated move

Emkay’s Naval Seth and Pulkit Chawla, however, felt that Bharti’s spectrum-acquisition strategy was well calculated as, apart from the 5G capacity spectrum purchase of 26GHz and 3300MHz, it selectively acquired spectrum in existing bands to bolster its network.

“We have baked in a 15 per cent tariff hike in our assumption along with spectrum usage charges (SUC) savings of Rs 800 crore and Rs 2,000 crore in FY24 and FY25, respectively, as we assume the saving would fully reflect once fresh spectrum is put to use,” the Emkay analysts said.

Vodafone Idea Ltd (VIL), which won 850 MHz in 3300 MHz and 5350 MHz in 26 GHz bands, bid for the least amount of 5G spectrum. 

“Given VIL’s weaker balance sheet, we believe that in the medium term, VIL could be at a disadvantage compared to Bharti and Jio in the 5G space given lack of adequate spectrum. We also see risks of its 5G being viewed as more of a marketing gimmick, with investments largely done to prevent churn than create a better-quality network,” said the BofA analysts. 

This put the company at the maximum risk of losing high-end subscribers over time if other telcos offer better 5G networks.

BNP Paribas’ Kunal Vora projected that an immediate impact of 5G services would be an increase in data usage and consumers upgrading to larger packs. 

“Overall, the spending has been higher than our estimate but there is a sizable SUC saving and we would focus on the operator’s ability to monetize the large additional capacity they will be able to create post the auction,” said Vora.

Also, the large spectrum holdings of existing operators eliminated the possibility of any new player entering the industry.