Adani threat fades but will Jio bid for 700MHz?

19 Jul 2022 , 11:53 AM

In a report dated July 19, analysts at IIFL Capital Services state that they ascribe a very low probability to Adani foraying into consumer 5G over time. They believe Jio’s EMD is quite high and it has the option of bidding for 15MHz in the 700MHz, consolidating its leadership in the sub-1GHz band, getting a head-start versus peers and raising their spectrum costs. This could result in Rs600 billion higher spending for Jio versus IIFL Capital Services’ case which is Rs600 billion/Rs350 billion/Rs190 billion bids from Jio/Bharti/Vi. The daily auction report of 26^th July will indicate whether 700MHz band sees bids, they add.
 
Adani Group’s low EMD suggests limited bidding

The EMD made by JIO/Bharti/Vi/Adani is Rs140 billion/Rs55 billion/Rs22 billion/Rs1 billion, as per DoT. A telco can spend up to ~9x EMD in the auctions. A telco cannot bid for more spectrum than the level determined by the EMD. However, a high EMD gives flexibility for a telco to bid even for far-lower spectrum than the level determined by the EMD. Adani Group may be able to bid for spectrum worth only ~Rs9 billion.

Investor concerns around higher potential competition from Adani Group should recede

Based on the EMD, the Adani Group could bid for just 1x100MHz of the 26GHz band in all circles or 1x400MHz in less than 5 circles. The group may start off with captive networks, as stated, but such limited spectrum may restrict its ability to offer services to other enterprises. Analysts at IIFL Capital Services see very low chances of Adani getting into consumer 5G, as both green-field rollout and a potential acquisition of Vi would entail significant investments and low returns.

Jio’s high EMD makes it eligible for 15MHz of the 700MHz band

Jio’s Rs140 billion EMD translates into ability to bid for spectrum up to ~Rs1.26 trillion, and is well above expectations. Jio can bid up to 15MHz of the pricey 700MHz band. While Jio may forgo the benefits from future reserve price cuts, 700MHz band will allow it to: 1) take its low frequency band holdings to 4x that of Bharti’s; 2) roll out standalone 5G network; 3) take 60% of the 700MHz holdings and leave Bharti with the option of taking up the 600MHz with less developed ecosystem; and 4) lock in higher spectrum prices for peers in future auctions.

Healthy bidding likely in the 850MHz, 3.5GHz and 26GHz bands

MHz	26GHz	3.5GHz	2500	2300	2100	1800	900	850	700	600	Total
Bharti	533.3	53.3					1.4				588.1
Vi	533.3	26.7					0.2				560.2
Jio	533.3	66.7						6.5			606.5
Total demand	1600.0	146.7					1.7	6.5			1754.8
Total supply	1900.0	220.0	8.6	2.2	7.1	11.5	3.4	6.5	25.0	30.0	2214.3
% sold	84%	67%					50%	100%			79%

Source: DoT, IIFL Research
Note: *Based on 2/3rds of the TDD spectrum assumed as downlink

Spectrum spending estimates (Rs billion)

MHz	26GHz	3.5GHz	2500	2300	2100	1800	900	850	700	600	Total
Bharti	55.9	253.6					43.4				352.9
Vi	55.9	126.8					7.6				190.3
Jio	55.9	317.0						223.5			596.4
Total	167.8	697.4					51.0	223.5			1139.7

Source: DoT, IIFL Research

Spectrum holding — pre and post auctions

	Post auctions	Pre auctions
MHz	mmWave	Mid band	LF band	Total	mmWave	Mid band	LF band	Total
Bharti	533.3	99.8	8.7	641.8		46.5	7.2	53.7
Vi	533.3	63.3	7.5	604.2		36.6	7.3	43.9
Jio	533.3	103.4	16.7	653.4		36.7	10.3	47.0

Source: DoT, IIFL Research
mmWave denotes 26GHz
Mid band denotes 1800MHz, 2100MHz, 2300MHz, 2500MHz and 3.5GHz
LF or low frequency band denotes 600MHz, 700MHz, 850MHz and 900MHz