In buyer’s market, spectrum auction may see minimal competition, focus on best value: Analyst

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January 7, 2021 5:20 PM

Spectrum auction in India has turned into a buyer's market, and may see "minimal competition" with operators going after airwaves that yield best value for money instead of focusing on renewing all expiring spectrum, BNP Paribas said.

spectrumMorgan Stanley said it does not expect much activity in the 700 MHz auction "unless Jio decides to build some capacity for potential 5G roll-out this year".

Spectrum auction in India has turned into a buyer’s market, and may see “minimal competition” with operators going after airwaves that yield best value for money instead of focusing on renewing all expiring spectrum, BNP Paribas said on Thursday. With countdown now on for spectrum auctions where bidding is slated to begin on March 1. ICICI Securities said it expects the final prices across spectrums to be equal to the reserve prices due to significant supply of radiowaves, and likely limited demand for expiring spectrums.

While Credit Suisse expected “limited participation”, BNP Paribas was of the view that spectrum auction in India has turned into a buyer’s market and may see “minimal competition” with operators picking up spectrum that provides best value for money instead of focusing on renewing all their expiring spectrum. The price of 700 MHz spectrum remains expensive and is unlikely to receive much response in the coming auctions, concurred most industry analysts. Operators are likely to skip 700 MHz band again, BNP Paribas said in its report.

“700MHz band prices remain significantly high to find any bidders,” ICICI Securities said. It expects Bharti Airtel and Vodafone Idea Ltd (VIL) to renew their expiring spectrum only partially due to excess spectrum holding. Bharti, it observed, has 57 MHz in 1800 MHz band and 6.2 MHz in 900 MHz band coming up for renewal in 2021, but has amassed huge spectrum via merger and acquisitions, which should significantly lower its renewal requirement in the upcoming auction.

“Vodafone Idea has 46 MHz spectrum in 1800 MHz band and 6.2 MHz in 900 MHz due for renewal, and we expect very little renewal requirement for VIL as well,” ICICI Securities said. The Department of Telecommunications (DoT) has released a notice inviting applications for the spectrum auctions in seven bands — 700, 800, 900, 1800, 2100, 2300 and 2500MHz bands, and the bidding is scheduled to begin March 1. The key date to watch for is February 5, 2021, the deadline for interested operators to submit their applications, ICICI Securities said.

Morgan Stanley said it does not expect much activity in the 700 MHz auction “unless Jio decides to build some capacity for potential 5G roll-out this year”. “We believe both Airtel and Jio are likely to renew their sub-1 GHz holdings and may selectively choose to augment 2300 MHz holdings to build data capacity,” Morgan Stanley said adding that by contrast, the 1800 and 2500 MHz bands may not receive much interest. According to Credit Suisse estimates, spectrum renewals may cost Rs 15,000 crore for Bharti Airtel, and Rs 24,000 crore for Jio, including spectrum owned by RCom.

“However, we do not expect Bharti Airtel to renew all the expiring spectrum given it has built up its spectrum holdings through mergers and acquisitions over last three years,” Credit Suisse said. It did not expect Vodafone Idea to participate materially in the auction given cash flow constraints and adequate spectrum holdings in context of market share already lost. Credit Suisse report anticipated “limited participation” for the ensuing auctions.

“We expect Jio to not only renew about 44 MHz of its spectrum which was bought from RCom but also buy about 55 MHz of spectrum currently owned by RCom in the auctions. This would entail spectrum capex (capital expenditure) of about Rs 240 billion (Rs 24,000 crore) at reserve prices with an upfront payment of about Rs60 billion (Rs 6,000 crore) if it were to opt for long-term funding,” it added. Jio may purchase additional spectrum (beyond expiring spectrum), as it looks to augment network capacity having garnered 35 per cent subscriber market share and a much higher share of traffic, it added.

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