Jio may sell capacity given spectrum deals; Bharti eyes share gain; ‘Hold’ retained on Bharti with TP of Rs 590
Operators will have to pay Rs 276 bn upfront while the remaining Rs 502 bn can be paid over the next 18 years but will attract an interest of 7.3%.
Reliance Jio’s hefty spectrum spends of Rs 571 bn and Bharti’s approach of acquiring more spectrum in its weaker markets do not bode well for the tariff environment. Jio may prioritise selling excess capacity created due to its spectrum purchase, thus delaying tariff hikes. Further, with Bharti acquiring over 50% spectrum in B-circles where its market share is low, its focus on market share gains is clear. We lower our PT to Rs 590 and maintain Hold on Bharti Airtel.
$11 bn of spectrum sold in auctions Spectrum auctions concluded with operators bidding for 1211MHz of spectrum (unpaired basis) worth Rs 778 bn/$10.6 bn. Among bands, 800MHz and 2300MHz bands were the most sought after as 65-89% of spectrum available in these bands were sold. The 900MHz and 1800MHz bands also witnessed decent demand with 39-43% spectrum being sold. Operators will have to pay Rs 276 bn upfront while the remaining Rs 502 bn can be paid over the next 18 years but will attract an interest of 7.3%.
Reliance leading spectrum spends Reliance Jio acquired 697MHz of spectrum (on unpaired basis) for Rs 571 bn. Since this was disproportionately higher than Bharti and Vodafone Idea, Reliance Jio’s spectrum market share has increased from 20% to 25%. While its focus on renewals and boosting 1800MHz spectrum was in line with expectations, further acquisition of 2300MHz to take its holding to 40MHz pan India came as a surprise.
Bharti Airtel focusing on share gains Bharti Airtel acquired 491MHz spectrum for Rs 187 bn, which helped it increase its spectrum market share to 29.5% – the highest in the industry. The spectrum spends were largely in line with our expectations with the company securing 5MHz spectrum in sub-1 GHz spectrum bands across 20 of 22 markets. This along with its focused spends on B-Circles where its market share is lower at 28% reflects its strengthening network in weak markets to gain market share.
Limited participation by Vodafone Idea Vodafone Idea acquired 24MHz spectrum for Rs 20 bn, with its spends primarily focused on regaining its renewal spectrum in 900MHz band. The company also completed 5MHz blocks in 1800MHz band in three circles to be able to use this spectrum for 4G. As a result of its limited participation, the company has lost 5ppt spectrum market share to 25% – in line with Jio.
Tariff hikes are unlikely Given that Jio has the highest tower and fibre on network, spectrum purchase will enhance its capacity. Jio is likely to focus on selling excess capacity as marginal cost of unit data/voice is negligible for telcos. Moreover, Bharti Airtel’s spectrum acquisitions in sub 1GHz in Maharashtra and MP – the key markets of Vodafone Idea – and focus on B-circles reflect its focus on gaining share. We maintain our Hold rating and lower our PT for Bharti Airtel to Rs 590 to factor in the spends in the current auctions.