5G spectrum auction may fetch over Rs 1 trillion, say analysts

The country’s two leading telecom operators, Reliance Jio and Bharti Airtel, are expected to spend between Rs 62,000-Rs 80,000 crore collectively in the upcoming auction to buy predominantly 5G spectrum in the 3.5 GHz and millimetre bands, depending on the formula for bidding that they eventually finalise, say sources in the know.

Given that the Adani group and Vodafone Idea are also looking to play a limited part in the auction, analysts say the figure could hit around Rs 1 trillion from the sale of these two bands alone.

At least one of the telcos points out that it estimates having to spend over Rs 40,000 crore for spectrum and an investment of at least another Rs 60,000 crore to build the network in the next two to three years. The total cost could go up to over Rs 1.5 trillion.

The redeeming feature is that telcos can pay for the spectrum across 20 installments with an interest of 7.2 per cent which will substantially reduce the financial outflow annually.    

The telcos are again expected to give the 700 MHz band — where 5G equipment is available — a miss, owing to the high base price. This is despite the fact that they have to make fresh investments to power the new band.  

Sources aware of the discussions in Reliance Jio and Bharti Airtel say they are working on various combinations to bid pan-India. One option is to take 80 MHz in 3.5 GHz and 800 MHz on the millimetre band.

Another is to go for the global norm of 100 MHz in 3.5 GHz and 1000 MHz in the millimetre band which is the basic requirement to build a robust network. For such a network, the two companies collectively have to shell out over Rs 77,000 crore, based on the base price.

However, with 330 MHz available in the crucial 3.5 GHz 5G band, discussions are now ongoing as to whether they should go more aggressive and bid up to the cap imposed on each operator (40 per cent of the total spectrum on offer) and grab a larger chunk of up to 130 MHz in the 3.5 GHz band.

Whether this will kick off competition and push the base price up looks unlikely because if the two players go for acquiring spectrum till the cap, there will still be 70 MHz available in the 3.5 GHz band. This could be enough for the Adani group and Vodafone Idea who have made no secret of their limited strategy for the auction.

Vodafone Idea has said publicly that it does not see any killer use cases for 5G and could buy spectrum in 5G to support 4G network in certain areas.

“But to sustain its business, it might have to buy 5G spectrum in circles where Vodafone is among the top two players based on subscribers and pick up as much as 50 MHz. But even then, assuming the Adanis stick to their strategy of not going for consumer mobility, one does not see any pressure on auction pricing, except maybe in some circles,” said a senior telecom executive.

The Adani group has said it has no plans to enter consumer mobility but simply wants to concentrate on its own captive private networks and stick to the enterprise business.

To do that, telecom equipment makers say it will be enough for Adani to buy 400 MHz in the millimetre band and just a bit (10 MHz) in the 3.5 GHz and pay a very reasonable Rs 6,000 crore or less for 20 years.

That estimate, incidentally, is for the whole country. The bill for the Adani group will be even smaller if it concentrates on just a few circles, for instance, Gujarat (it has received a LoI for the UL-ISP B licence) where it would have to spend a mere Rs 430 crore for a similar amount of spectrum for 20 years.

Of course, telcos are also expected to buy spectrum in other bands too based on their requirement. Reliance Jio could buy some additional spectrum in the 850 MHz band in some circles (it currently has between 5-10 MHz in the various circles) which give coverage.

Reliance Jio has sufficient 10 MHz on a pan-India basis in the 1800 band and 40 MHz across the country in the 2300 band. In the 850 band it has 10 MHz in three circles and over 6 MHz in eight circles.

Bharti Airtel could strengthen its requirement for spectrum in the 900 MHz band. So might Vodafone Idea. But how much they will buy and at what cost  has to wait for the actual auction.

Or it can be derived, possibly, from the earnest money deposit, or bank guarantee, given to the government before the auction begins.  

This bank guarantee provides a hint of how much spectrum and how aggressively a telco wants to bid. But here too. It’s a battle of wits -  telcos admit that they sometimes keep the size of their guarantee two to three times higher than what they are actually willing to spend to confuse competitors.

THE POSSIBLE SCENARIOS

• Reliance Jio and Airtel looking at pan-Indian spectrum ranging from 80-130 Mhz in 3.5 Ghz and 800-1,000 Mhz in millimetre band  
• Firms unlikely to bid for 700 MhZ which is being used for 5G due to high base price and additional investment required in network
• VIL says it will bid for some 5G network. Competitors say it will take reasonable amount of spectrum in some of its key circles where they have substantial market share to be in reckoning  
• Adani mulling taking  reasonable spectrum in millimetre band and some amount for coverage in 3.5 Ghz, if needed
• Telcos say investment for laying out 5G network would require Rs 60,000 in the next two to three years