Jio, Airtel poised to gain at Vodafone Idea's expense in 5G auction

With a war chest of around Rs 1.75 trillion (or 90 per cent of the total) for the upcoming 5G auction on Tuesday, Reliance Jio and Bharti Airtel are well positioned to accelerate their share in the market and revenue at the expense of Vodafone Idea (VIL), say most analysts.

Nomura Research goes further to say as a result “India’s telecom sector could end up as a virtual duopoly once again”. Whether that happens or not only time will tell. But VIL would be playing a muted role in the auction (based on its earnest money deposit, or EMD, of Rs 2,200 crore, which would, analysts say, be able to buy only a minimum amount of all-India spectrum in 5G -- 50 MHz in the 3.5 GHz and 400 in the millimetre bands) or concentrate only on its strong circles. It needs to raise the much-delayed funding of Rs 20,000 crore to enhance its 4G coverage, and also invest in 5G.

The Adanis, after the initial noise as to whether it will get into mobile telephony, will stay clear of consumer 5G mobile and for the time being have a limited role in the enterprise space.

UBS points out high-end subscribers of VIL might move in the absence of a meaningful 5G launch by the service provider.

And Airtel, between 2020 and 2022, has gained 3 million post-paid customers, implying they migrated from VIL. Global trends show 12-18 months after the launch of 5G, the average revenue per user (ARPU) has shown an increase ranging from 10 per cent (China) to 20 per cent (Hong Kong).

That is very different from when 4G was launched some years ago in India, after which ARPUs fell dramatically. In 5G, this means more revenues for Jio and Airtel.

A key test would also be the band a telco wins in the crucial 3.5 GHz 5G band (3300-3630). For instance, anyone winning the 3500-3600 band, which is unencumbered, will be in an advantageous position because it will have no interference from other non-telco players also sharing it. Under the notice inviting applications for 5G, if the total spectrum auctioned in 3.5 GHz is up to 300 MHz among all the operators, it will be earmarked backwards from 3600 MHz, starting with the bidder whose rank is number one. That rank is determined through a complex process of how much and how many times a telco pushes up the price in each round.

The top bidder gets the best band, 3600-3500 (assuming all the three players bid 100 MHz each). But the second bidder, as highlighted by Airtel, will face interference in the 3400-3500 band from the Navic system (a constellation of eight satellites run by the Indian Space Research Organisation, which provides navigation and timing services), which is using 25 MHz between 3.4 and 3.425 GHz.

The Department of Space has indicated a buffer zone of 350-1,400 km for any micro site adjacent to the system. Airtel, based on its calculation, has told the regulator even if it keeps a 130-km buffer, it will not be able to cover 70 million of the country’s population, 600 towns, and 60,000 villages in the buffer zone.

Similarly, as for the 3300-3400 MHz band, the navy uses it along the country’s vast coast line and even here a buffer of 100 km has to be kept.

Attempts are being made to resolve this issue.

The other issue to watch is whether Reliance Jio picks up the crucial 700 MHz band, which is a premium one for coverage to enhance 5G quality. But it has remained unsold in the last two auctions because of its huge base price, which has been brought down by 40 per cent in this auction. With its war chest, Jio has the cash to buy it. It has to fork out an additional Rs 39,270 crore for 10 MHz, which is well within the range of its EMD.

But opinion is divided. An analyst pointed out Jio had 10 MHz in the 800 MHz band, which it bought largely in the March 2021 auction. It used only half of it for 4G services. He said based on his previous discussions the suggestion was that this would be kept reserved for 5G services.

Others point out it is useful for Jio to buy more in the 800 MHz band rather than in 700 MHz because it will become a challenge to keep adding bands from the spectrum deployment perspective.

However, IIFL has a contrarian view. It says such a move will increase its overall holding of lower frequency bands (essential for coverage) by four times that of Airtel, and help it in rolling out the standalone 5G network, which is far superior to non-standalone 5G, where the core of the network is still 4G and therefore does not give the low latency required for many applications. Also by leaving a limited amount in the 700 MHz band to Bharti, the latter might have to buy the 600 MHz band, which has a less developed eco system (equipment and network avaiability). However, there is one downside. It might have paid more because in future auctions spectrum might have a lower base price.

STAKES NOT TOO HIGH FOR VODA

• Based on VIL’s EMD, it would be able to buy only a minimum amount of all-India spectrum in 5G, say analysts
• The Adanis, after the initial noise as to whether it will get into mobile telephony, will stay clear of consumer 5G mobile
• High-end subscribers of Vi might move in the absence of a meaningful 5G launch by the service provider
• Airtel, between 2020 and 2022, has gained 3 million postpaid customers, implying they migrated from Vi