Analysts' View On How India's 5G Spectrum Auction Fared On Day 1
India's 5G spectrum auction saw bidding largely at reserve prices on the first day led by Reliance Jio Infocomm Ltd. and Bharti Airtel Ltd., according to analysts.
Four rounds of bidding, with an amount of nearly Rs 1.45 lakh crore, were completed on Tuesday, with demand yet to outstrip supply of airwaves.
Reliance Jio, Bharti Airtel, Vodafone Idea Ltd. and Adani Data Networks Ltd., a unit of billionaire Gautam Adani-controlled group, are participating in the auctions with 72 GHz of airwaves worth Rs 4.3 lakh crore on offer.
Here's what analysts thought of the day's proceedings:
Bids are largely across 5G spectrum bands of 3.5 GHz, 26 GHz and 700 MHz apart from bids in the 700 MHz and 1,800 MHz spectrum bands. There was some selective bidding in 800 MHz, 900 MHz, 2,100 MHz and 2,500 MHz spectrum bands.
Bidding activity across bands has been largely at reserve prices.
There were bids for 10 MHz spectrum (2 blocks) on a pan-India basis in the 700MHz band. Jio could be the likely bidder for this spectrum given Airtel and Jio are both bidding in 3.5 GHz and 26GHz bands, and Jio's high EMD deposit of Rs 14,000 crore gives it adequate eligibility points.
There has been some decent bidding in the 1800 MHz band in Mumbai, Kolkata, Himachal Pradesh, Maharashtra, Gujarat, Odisha, etc. Airtel and Jio might be selectively adding spectrum in this band.
Vodafone Idea has likely bid for 50 MHz spectrum in 17 circles (out of 22 circles) in the 3.5 GHz spectrum band as they comprise 98% of its total revenues.
With Jio likely having bid for 700 MHz spectrum, we expect Airtel to also bid for it in the next spectrum auctions which could be held over next 1-1.5 years, by when the 5G ecosystem will likely have gained more scale.
Limited aggression in bidding for spectrum. There was no excess demand in any bands with all bids placed at reserve prices, indicating benign competitive activity so far.
There was no demand yet in the 600 MHz and 800 MHz bands. 900 MHz band (where Bharti Airtel and Vodafone Idea have footprint) showed demand in two out of 21 circles with 12% of total available spectrum being won.
The 700 MHz band attracted bidding unlike lack of interest seen in the previous two auctions held in 2016 and 2021. This time there was demand across 22 circles with about 40% of the total available spectrum being won.
5G bands (3,300 MHz mid-band and 26 GHz high band) enjoyed the highest percentage of activity, as we'd expected. The 3,300 MHz band saw 5.25 GHz win out of the total of 7.3 GHz put to auction, and 26 GHz saw 44.95 GHz win out of the total of 62.7 GHz available across all circles. Assume broad-based activity here from all operators, including the new applicant.
Day 1 concluded on a negative note. Operators picked spectrum worth Rs 1.45 lakh crore, which reflects a modicum of investment indiscipline.
Were of the opinion that operators’ priority would be to drive return on invested capital and higher cash flows, but spectrum auctions have never been easy.
Analysis shows that Jio had likely bid for highest spectrum worth Rs 80,100 crore and may have opted for 10 MHz spectrum in 700 MHz band.
Bharti Airtel may have bid for spectrum worth Rs 45,000 crore and spent 20% more than our base case. The extra spend is probably for 1800 MHz and 2,100 MHz bands.
Vodafone Idea has likely bid for Rs 18,400 crore for spectrum, which is within our estimated range. Adani Data Networks should have picked 26 GHz spectrum pan-India.
Base case assumption was 700 MHz band will remain unsold in this auction, hence operator(s) bidding for 700 MHz at such high prices is a drag for the industry as it structurally reduces returns.
It appears Adani has bought 26 GHz spectrum in 20 circles (except in Delhi and Kolkata), and its total spectrum purchase could be 3350 MHz for Rs 900 crore (our estimate is provisional data does not reflect the entire purchase by Adani). It should have purchased 200MHz spectrum in all circles except Gujarat where it would have bought 400 MHz.
Spectrum spend by market leaders Jio and Bharti is significantly higher than expected, requiring the industry to grow faster in order to justify such large investments. This has not been true in most geographies across the globe with higher spectrum investment leading to depressed returns on invested capital for the industry. Therefore, would remain cautious on the higher investments in India telecom.
Jio, Airtel have gone overboard. May have spent Rs 81,000 crore and Rs 45,000 crore, respectively.
Jio may have spent Rs 81,000 crore, much above our estimate of Rs 35,000 crore, predominantly towards 3300 MHz, 700 MHz, and 26 GHz.
Airtel may have spent Rs 45,000 crore, much ahead of our expectation of Rs 35,000 crore, largely towards 3300 MHz, 26 GHz, and 1800 MHz.
Vodafone Idea too seems to have spent Rs 15,000 crore. Considering its low EMD, Adani may have bid on the 26 GHz band.
Adani may have bid Rs 500 crore for Gujarat and some more circles.
Saw no price increase in any bands, underscoring the significantly high quantum of spectrum available across bands.
Given the huge quantum of spectrum available and enough caps to restrict aggression, there is limited need to spend heavily, even before the 5G ecosystem develops. There is no upfront payment, with a low fixed interest rate.
There were no bids received for the 600 MHz, 800 MHz, and 2300 MHz bands. The rest of the bands saw a lukewarm response.
Auction expected to be completed on July 27 with a few more rounds.
Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.
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