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Upcoming spectrum auction

Will we see another fierce battle for supremacy?

The spectrum auction will begin on 1st Mar’21. Given the consolidation in the sector over the last decade, we hope telcos will say goodbye to the old irrational and desperate price bidding to acquire the limited available spectrum.

* We expect low competition intensity as there is sufficient spectrum, and different band usage and priorities of each player.

* RJio/Bharti/VIL need to spend INR280b/INR129b/INR83b at the reserve price to renew their existing spectrum.

* However, the Earnest Money Deposit (EMD) indicates that Bharti, RJio may be interested in spending 2-3x the renewal requirement in other bands. VIL has limited options given its liquidity position.

* The sub-GHz band will be of high interest to Bharti and RJio. But unlike previous times, both companies may choose separate bands (900MHz/800MHz), and hence, should not be a cause for concern.

* The two bands of 1,800-2,300MHz may see some clashes, but given the sufficient amount of spectrum available, we expect limited competition.

* With a FCF of over INR215b (excluding spectrum renewal charges) in FY22E, Bharti should be comfortably placed. However, its net debt would increase to INR850-900b. RJio has sufficient liquidity from the recent stake sale, with a FCF of INR143b in FY22E.

Expect lower competitive intensity

The auction may see lower competitive intensity given the varied priorities of each player. VIL’s weak liquidity position may keep its interest low. Bharti’s sub-GHz spectrum interest may largely be limited to 900MHz, while RJio’s renewal of 800MHz spectrum may not see much interest from rest of the players. The 1,800MHz and 2,300MHz spectrum may be of high interest to both Bharti and RJio, which may eye it for their 4G plans and for their 5G requirements going forward.

How much spectrum is expiring for each telco?

In the 800MHz band, RJio will see the expiry of 115MHz, which it acquired/shared from RCOM in 19 circles. The same for Bharti and VIL stands at 57MHz in the 1,800MHz band and 37.8MHz/6.2Mhz in the 1,800MHz/900MHz band, respectively. This would cost RJio/Bharti/VIL INR280b/INR129b/INR83b at the reserve price. Though this is a mere 5-10% of Bharti and VIL’s spectrum, it is significant in the case of RJio.

EMD indicates Bharti, RJio’s interest may lie beyond renewal spectrum

RJio/Bharti has deposited a higher earnest money for the upcoming auction, while the same for VIL has been lackluster. As per media reports, RJio deposited the highest earnest money of INR90b, which would allow it to purchase spectrum worth INR450-660b. Bharti is said to have deposited INR30-33b, which would allow it to purchase spectrum worth INR150-250b. VIL has deposited a mere INR5b to buy spectrum worth INR25-35b. The high EMD will allow RJio to spend INR200-250b, beyond the INR280b that it requires for renewal of its expiring spectrum at the reserve price. Bharti will require INR130b at the reserve price to renew its expiring 1,800MHz spectrum. The management said it could also look to buy additional spectrum in the sub-GHz band. RJio/Bharti could also buy additional spectrum for 5G services as per the recent modification of rules. VIL's low EMD against its need to spend INR83b to renew existing spectrum at the reserve price implies it may not renew all its attractive 1,800MHz/900MHz spectrum, further weakening its position.

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