The much-awaited auction for telecom spectrum, including for 5G airwaves, will begin this week from Tuesday. However, analysts do not anticipate aggressive bidding, given sufficient availability of spectrum and limited participants.
A total of 72,097.85 MHz (or 72 Ghz) of spectrum with a validity period of 20 years will be put on the block during the auctions that are to begin on July 26. Airwaves across Low (600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz), Mid (3300 MHz) and High (26 GHz) frequency bands, worth at least ₹4,316 billion ($56 billion) will be put up for bidding.
It is expected that the Mid and High band spectrum will be utilised by telecom service providers to roll-out 5G services, wherein speeds would be 10 times higher than what is possible through the current 4G services.
“Given enough availability of spectrum, any sharp aggression or bidding higher than the reserve price appears unlikely. The highest amount of spectrum available per player for 5G bands on a pan-India basis would be worth ₹489 billion ($6.1 billion). Assuming both Reliance Jio and Bharti Airtel bid to the maximum extent allowed, there would still be enough spectrum left to satisfy the maximum amount that the other two players can bid,” Morgan Stanley said in a recent note.
Likewise, Motilal Oswal noted that there is no risk of overbidding as unlike previous auctions, there is abundant spectrum, limited participants and a cap on spectrum bidding to limit the bidding space to three-to-four sizeable players across 5G bands (700MHz, 3300MHz, and 26GHz).
“Given enough availability of spectrum, any sharp aggression or bidding higher than the reserve price appears unlikely. The highest amount of spectrum available per player for 5G bands on a pan-India basis would be worth ₹489 billion ($6.1 billion). Assuming both Reliance Jio and Bharti Airtel bid to the maximum extent allowed, there would still be enough spectrum left to satisfy the maximum amount that the other two players can bid”Morgan Stanley
Four bidders will be participating in the upcoming auction – Reliance Jio, Adani Data Networks, Bharti Airtel and Vodafone Idea. As per official data, while Reliance Jio has made a ₹14,000-crore earnest money deposit (EMD), the deposit amount for Adani Data Network stood at a modest ₹100 crore, for Bharti Airtel at ₹5,500 crore and for Vodafone Idea at ₹2,200 crore.
The EMD provides an indication of the maximum quantity of airwaves a company can bid for in the auction. Typically, the maximum auction participation is 8-10x of the EMD.
“Even if Reliance Jio (looking at its aggressive EMD) or any other player bids aggressively, a) it may not move the reserve price materially, and b) it will still leave sufficient room for all players to acquire spectrum, either in this or subsequent auction,” Motilal Oswal said, however, it added that telcos have offered a sizeable EMD in a bid to create a reasonable war chest to combat any aggression ahead of the 5G auction.
Credit Suisse notes that Reliance Jio’s highest EMD deposit is an enabler, but may not necessarily result in materially higher spends in the auction. “Jio has a history of submitting materially higher than required bids in the spectrum auctions, i.e., in 2016 auctions wherein Jio deposited the highest EMD amount of ₹65 bn while it ended up buying EMD worth spectrum of only 23% of the initial EMD deposited.”
Meanwhile, research agency Nomura noted that with Adani group submitting a modest EMD, the concerns on its entry into the telecom sector has significantly eased now and it expects Adani’s overall outlay likely to be less than ₹8-10 billion. For Reliance Jio, it estimates potential outlay at about ₹405-600 billion, while for Bharti Airtel the overall outlay could be ₹394 billion and for Vodafone Idea, about ₹184 billion.
“Despite the successive sharp cuts in the reserve price, 700 MHz spectrum band has not had any takers so far in the past few auctions. Unless R-Jio were to become very aggressive, we don’t think 600/700 MHz band will attract takers, even in the upcoming auction,” Nomura said, adding that it estimates all the winning bids at the reserve prices with an overall spectrum outlay of potentially ₹1 trillion.