5G auction: Jio bulks up its sub-1GHz holdings

Analysts at IIFL Securities estimate SUC savings to result in mobile EBITDA margin expansion of 260 bps/300 bps/210 bps for JIO/Bharti/Vi, respectively. Indus may benefit from 5G loading in the near term, but large low-frequency holdings may keep a check on steady-state tower count.

August 03, 2022 10:21 IST | India Infoline News Service
In the recently-concluded 5G spectrum auction, Jio/Bharti/Vi spent Rs881 billion/Rs431 billion/Rs188 billion, respectively. Jio’s low frequency band holding is now ~3x of peers, and 10MHz of the 700MHz band will enable superior indoor coverage and give it a head-start in rolling out 5G standalone (SA) network. That said, Bharti will have the opportunity to pick up spectrum in the 700MHz band when 15MHz unsold spectrum from 2022 auctions is likely to be auctioned next year. Vi has picked up adequate 5G spectrum to defend market share in its key circles, provided it raises adequate equity to fund its 5G network rollout.

Spectrum worth Rs1,502 billion sold; Rs134 billion annual instalment for 20 years

Spectrum in 8 of the 10 bands saw bids, with 72% of supply being sold. The large supply ensured that the 2022 auction was the biggest ever, in terms of bid-value, at Rs1,502 billion (~30% higher than IIFL Securities’ estimates), though most spectrum was sold at base price. Based on the most relaxed payment option, the government will see annual proceeds of Rs134 billion for 20 years, starting FY23 (7.2% interest rate).

Jio extends low-frequency footprint advantage by a considerable margin

Jio and Bharti picked up adequate pan India 5G spectrum in 3.5GHz and 26GHz bands. Vi picked up spectrum in both bands in its 16 key circles (but in lower quantities). Jio also picked up 10MHz in 700MHz in all circles. With 15MHz still left unsold in this band, Bharti could still pick up adequate spectrum in future auctions, which will narrow the gap versus Jio, in low frequency holdings. Adani Group picked up 26GHz spectrum in 6 industrialized circles for Rs2.12 billion.

Jio to have lowest SUC, but Bharti likely to see highest margin expansion

With spectrum acquired in the 2022 auctions carrying nil SUC, analysts at IIFL Securities estimate that SUC (including on microwave spectrum) would come down to 1%/1.2%/1.8% for Jio/Bharti/Vi, resulting in EBITDA margin expansion of 260bps/300bps/210bps, respectively.

IIFL Securities expects Bharti to pick up 10MHz of the 700MHz in the next auction

Jio has bagged 10MHz of the 700MHz in all circles, taking its low-frequency footprint to almost 3x that of Bharti. 700MHz is a key low-frequency 5G band with superior indoor coverage and would require fewer towers in rural areas. It is also critical for standalone (SA) 5G networks, which would allow telcos to offer advanced enterprise services through network slicing.

While one may be tempted to think that Jio is forgoing the benefits from future reserve price cuts, there was a chance that price cuts may not have materialized with the DoT stating that if 700MHz was not sold, it may allocate the same to Railways. It would also allow Jio to roll out 5G networks in an optimal fashion, with rollout in the low-frequency band first, followed by the mid-band and then high frequency bands.

While Jio would get a head-start in the 700MHz band, there would be still adequate availability (15MHz) in the next auctions, of which Bharti can pick up 10MHz. If another auction is held within a year, Bharti may end up getting this spectrum just at a time when 5G handsets become more affordable. Bharti may end up paying the same amount as Jio (~Rs400 billion for 10MHz), but it would still be quite competitive in the market.

FREE Benefits Worth 5,000



Open Demat Account

  • 0

    Per Order for ETF & Mutual Funds Brokerage

  • 20

    Per Order for Delivery, Intraday, F&O, Currency & Commodity