Telecom operators are unlikely to bid aggressively in the upcoming spectrum auction and are expected to buy airwaves only to revive permits that are set to expire over the next two years.

Analysts said that the high reserve price combined with the weak balance sheets of most telecom companies will dampen the bids.

A research report by CreditSuisse said that Bharti Airtel has 12 MHz and 47 MHz of spectrum expiring across 900Mhz and 1800 MHz bands respectively. “At reserve prices, it would cost Bharti Airtel ₹15,000 crore to renew this spectrum with upfront payment of ₹6,700 crore. However, we do not expect Bharti Airtel to renew all the expiring spectrum given it has built up its spectrum holdings through M&A over last three years,” CreditSuisse said.

Also read: Telecom spectrum auctions from March 1

In case of Vodafone Idea, analysts do not expect it to participate materially in the auction, given cash flow constraints and adequate spectrum holdings in the context of market share already lost.

“In case of Jio, we estimate that in addition to 44Mhz of spectrum acquired from RCOM coming up for renewal, there is 55Mhz of spectrum due for renewal which is still owned by RCOM but being used by Jio. We expect Jio to not only renew 44MHz of its spectrum which was bought from RCOM, but also buy 55MHz of spectrum currently owned by RCOM in the auctions. This would entail spectrum capex of ₹24,000 crore at reserve prices with upfront payment of ₹60,000 crore if it were to opt for long-term funding,” CreditSuisse said.

Muted bid for 700 Mhz

Jio could look to buy additional spectrum in the 700 Mhz band, which is ideal for 4G services. But reserve price for 700Mhz spectrum is 38 per cent higher than 800MHz spectrum with prices in three metro circles being 56 per cent higher compared to 800Mhz spectrum. “We thus expect telcos to again give a miss to spectrum in the 700 Mhz band. Further, we expect Jio to purchase additional spectrum (beyond expiring spectrum) as it will look to augment its network capacity having garnered 35 per cent subscriber market share and a much higher share of traffic,” Credit Suisse said.

Analysts at Morgan Stanley said that the 700 MHz auction in 2016 was a failure because reserve price was high at 4x 1800 MHz and 2x 800 MHz. “While the reserve price was reduced by 43 per cent on 2018 TRAI recommendation, it remains expensive, we believe – an operator would need to spend $9 billion to own 10 MHz of spectrum pan-India,” it said.

“Currently, we are building into our base case $1.5 billion of capex for Bharti Airtel and $2.5 billion for Reliance Jio towards spectrum renewal/purchase. With fewer operators in the system and Vi unlikely to bid much, we do not see aggressive bidding in these auctions,” Morgan Stanley said.

Also read: Govt to sell 2251.25 MHz spectrum worth ₹3.92-lakh crore in March

Analysts at BNP Paribas said that although this is the first auction since 2016 and data usage has exploded over the last few years, operators will only look to renew some of their expiring spectrum and address capacity issues in certain circles by adding to their spectrum holdings. “In our view, Jio is likely to be the largest bidder because of these reasons. However, the industry has gone through structural changes such as consolidation and there will be only 2-3 bidders for the spectrum unlike 7-10 bidders previously. Also, industry pricing and profitability have reduced since 2016 and this reduces the risk of any irrational bidding,” BNP Paribas said in a research note.

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