Will Bharti Airtel take on Jio at the spectrum auction?

Airtel has, like Jio, been rolling out its 5G technology with speed through about 43,100 network sites and 55,982 kilometers of fiber. Image: Shutterstock

This year’s bidding for fresh 5G technology spectrum—which opens on June 6—could see a different type of battle between India’s leading telcos Reliance Jio and Bharti Airtel. A fresh scramble or aggressive bidding for spectrum—of the likes of 40 rounds in seven straight days which we saw in mid-2022—is unlikely.

The focus instead is expected to be on Bharti Airtel, where the company has 42 MHz of spectrum in the 1800 MHz and 900 MHz bands coming up for renewal in six circles. But while bidding for these circles is expected, experts suggest that Airtel could well bid for more spectrum in the bands where rival Jio has a strong foothold.

Airtel in the spotlight

“Bharti Airtel may also pick up 900MHz spectrum in a few circles where its 900MHz holdings are relatively low at present. It may also selectively pick up spectrum in the 2300MHz and 3.6 GHz bands,” Balaji Subramanian, vice president at IIFL Securities, who tracks the telecom sector, told Forbes India.

Lower frequency bands like 800 MHz are better at providing coverage over a wide area and can penetrate obstacles like buildings and walls better and provide wider coverage in rural and suburban areas. High frequency bands are better suited for urban areas, by providing higher capacity and faster speeds.

Bharti Airtel did not respond to questions on its auction strategy and the 5G expansion rollout.

Bharti Airtel has been one of the sharpest gainers at the stock markets, up about 73 percent to Rs 1,387 at the BSE in the past one year and 43 percent in the calendar year 2024. Airtel has, like Jio, been rolling out its 5G technology with speed through about 43,100 network sites and 55,982 kilometers of fiber. Factors like improved revenues through tariff hikes and no alarming capex in FY25 are emerging as positives.

Fresh capex spends in FY25 will see “a moderation” Bharti Airtel’s chief financial officer (India and South Asia) Soumen Ray said in a May 15 earnings call for analysts. A hike in tariff rates is also expected to boost revenues in the coming weeks after the general election results.

Analysts at Jefferies expect maximum spectrum demand of $2.5 billion, implying that just 21 percent of the spectrum value will be sold. Compare this to the value of spectrum in 2022 ($18.1 billion) and $9.4 billion in 2021, and one would realise that the value of spectrum expected to be sold this time will be much lower.

“I do not expect any major surprises in the upcoming spectrum auction. Most of India’s recent spectrum auctions have ended up with spectrum going at a reserve price. Companies which need spectrum had bid for it and get it at the reserve price which the government sets,” Mahesh Uppal, director of consulting firm ComFirst India, which specialises in policy and regulatory issues relating to telecom and the internet, told Forbes India.

For the current spectrum auction, the earnest money deposit (EMD) from Reliance Jio is Rs 3,000 crore, Rs 1,050 crore from Airtel and Rs 300 crore from Vodafone Idea (Vi). A rupee of EMD makes it possible for a telecom company to bid for approximately Rs 11-12 of spectrum value. This translates to a maximum of Rs 36,000 crore bidding from Jio, Rs 12,600 crore from Bharti Airtel and Rs 3,600 crore from Vi.

Experts are not too sure exactly how Jio will utilise its EMD and buy more spectrum. “Jio has left its options most open and could acquire more spectrum than Airtel and Vi. Spectrum is an asset and clearly it is something that an ambitious player like Jio could have plans for, especially the lower frequency spectrum (800 MHz) which has very good propagation characteristics and can reduce the cost of civil infrastructure,” Uppal said.

“The EMD seems to indicate that Reliance Jio wants to buy more spectrum, it has deeper pockets and will probably bid for more spectrum than its competitors,” he added. But there is also the possibility that the higher EMD could just be a signaling tactic, to keep Airtel in a cautious mode.

Also read: 5G expansion: Sluggish and silent

Vi eyeing 5G, finally

Debt-ridden Vodafone Idea (Vi), has, unsurprisingly, placed an EMD that is unlikely to trouble its rivals. It is in the phase where it is expanding its 4G technology coverage for subscribers and planning for the launch of 5G services. The positive for Vi has been a successful equity fund raise—Rs 18,000 crore raised through a follow-on public offer on April 23—which will help it boost its infrastructure and make payments to the government.

So even as its spending towards 5G technology will be sharply lower than that of Jio and Airtel, it will at least now be in a position—even though late—to launch 5G services at some stage. Vi has been losing total subscribers for at least 23 successive quarters, to 213 million subscribers in March 2024 from 435 million in June 2019.

Vi’s CEO Akshaya Moondra told analysts in their earnings call on May 17 that the capex will be towards expanding 4G population coverage in 17 priority circles, which contribute over 98 percent to its revenues.

“It is important to note that since we will be launching 5G now, we will be well placed to effectively utilise our capex spend as we will be able to address a part of the capacity requirements via 5G instead of 4G,” Moondra told analysts.

Vi declined to participate in the spectrum auction story.

The Vi stock has surged 115 percent to Rs 15 at the BSE in the past one year and 12.3 percent in the past six months after the successful fund raise and a report from UBS. The global investment bank has upgraded Vi to ‘Buy’ from ‘Neutral’ on hopes that the telco could get relief in the form of AGR reduction by the Supreme Court or equity conversion, moratoriums by the government.

5G returns: Too many unknowns

While telecom companies will bid for fresh spectrum, they have been candid enough to admit that monetisation of 5G is still to take place and has been a tricky business. “A fair amount of the 5G rollout is yet to take place. There are still many unknowns in the monetisation of 5G business and we are not clear how it will play out in coming quarters,” Uppal of ComFirst India says.

Airtel’s managing director and CEO Gopal Vittal responding to Goldman Sachs India analyst Manish Adukia at the May 15 analysts meet said: “I agree with you that there is limited monetisation on 5G but the way we see it is the overall return of the business. So today all of the capacity investments are going behind 5G.”

Airtel has stopped investing in any capacity investments on 4G and the return on investments is predicted on pricing and tariffs. “I think the return that the industry really needs is predicated on tariff repair and this is really the heart of the problem that we have today with our pricing and tariffs at an absurdly low level relative to any other part of the world, so tariff repair is solely needed for return ratios to improve.”

“Frankly it does not matter which technology it comes from. The fact, however, is that 5G is a more future-proof technology so to that extent it is just about advancing capex that would anyway happen.” The focus will thus now be on boosting revenues through tariff hikes. The attention will thus shift to the market leader Jio, who has usually taken the lead.