Assessing Bharti's low-frequency spectrum

15 Dec 2022 , 10:17 AM

Bharti’s current LF holdings are <50% of Jio’s and carry 2G and 4G traffic. 5G on LF bands would be important, as Bharti eventually moves to standalone (SA) and/or deploys rural 5G. With 4G likely to be in use for next few years and lack of adequate LF spectrum to support 5G, 4G and potentially 2G simultaneously, analysts at IIFL Securities believe Bharti may have to raise LF holdings over time. While it may not need LF spectrum for 5G in next two years, it faces two options: 1) skip the 700MHz auctions next year, conserve capital but face the risk of 700MHz getting allotted to PSUs; 2) lock up capital (~Rs400 billion) in 700MHz, see temporary debt spike, but ensure long-term competitiveness.

Flexibility of calling 75% of Rs210 billion rights issue proceeds, steady RMS gains and ARPU hikes should keep leverage in check. Bharti may go for option 2, unless visibility on LF spectrum availability improves and 5G uptake is slower than expected.

Bharti: No need for SA 5G in 12-18 months

With 5G handsets likely to take 12-18 months to achieve critical mass and limited near-term use cases, analysts at IIFL Securities do not see a pressing need for Bharti to deploy SA network. Eventually, when it deploys SA, it will need 10-15MHz of fresh spectrum.

Bharti’s future SA rollout: 700MHz or other bands?

As per a survey of global telcos, while LF band is not absolutely essential for 5G SA, it gives a competitive edge. Considering different options involving existing LF and mid-bands for SA 5G, analysts at IIFL Securities concluded that acquiring 10MHz of 700MHz band is among the better options for Bharti. 700MHz would be key in its rural 5G, in the medium term.

Bidding for 700MHz too late entails risks

With limited near-term requirement for 700MHz, one may surmise that Bharti does not bid for 700MHz in 2023 auctions, expecting it to pick up in 2024, or later. However, this approach entails the risk of the government allotting the spectrum to PSUs.