Bharti Airtel is poised to boost its sub-GHz spectrum holdings in the coveted 900 MHz band across a dozen circles, likely emerging as the top spectrum buyer among the three major telecom operators in the upcoming auction, despite Reliance Jio submitting the highest earnest money deposit (EMD), according to analysts.
This strategic move is primarily because Airtel, led by Sunil Mittal, lags behind market leader Jio in sub-GHz spectrum holdings. Airtel is expected to strengthen its low-band spectrum portfolio in the upcoming sale starting June 6 to enhance rural mobile broadband coverage.
Latest telco spectrum data from Axis Capital reveals that Airtel’s sub-GHz spectrum holdings in the 800 and 900 MHz bands total 176 MHz, significantly lower than Jio’s 445 MHz. Jio holds a larger sub-GHz spectrum due to its pan-India 700 MHz airwaves and nationwide 800 MHz spectrum. Vodafone Idea (Vi) has a sub-GHz spectrum holding of 141.2 MHz in the 900 MHz band.
Earlier this month, Airtel Managing Director Gopal Vittal announced plans to expand its 4G network in rural India by adding 25,000 sites in the coming quarters. The EMD is indicative of a telecom company’s bidding strategy and spectrum buying capacity, providing eligibility points that determine the amount of spectrum it can target in specific bands and circles.
“Despite Jio posting the highest EMD, Airtel may be the biggest spender in the 2024 spectrum auction due to its recent rural expansion efforts and improved balance sheet, which strengthen the case for more 900 MHz spectrum acquisitions in 12 circles,” IIFL stated.
The brokerage estimates the spectrum outlay for Jio, Airtel, and Vi to be Rs 900 crore, Rs 10,400 crore, and Rs 1,200 crore respectively in the upcoming auction. Jio is expected to purchase 1800 MHz spectrum in four markets, while Vi will renew 900 MHz spectrum in the West Bengal and UP West circles. Jio’s Rs 3,000 crore EMD surpasses Airtel’s Rs 1,050 crore and Vi’s Rs 300 crore, although none of Jio’s spectrum is up for renewal in this auction. Airtel and Vi face renewals in six and two circles respectively in the 900 MHz and 1800 MHz bands. Telcos can technically bid for spectrum worth up to 12 times their EMD.
Analysts estimate the government will collect a modest Rs 1,200 crore from the auction, expecting Airtel, Jio, and Vi to collectively buy around Rs 12,500 crore worth of 5G airwaves—about 13% of the Rs 96,320 crore worth of spectrum on offer. This estimate is based on the expectation that the telcos will choose the softest equal annual instalment payment option over 20 years.
This equal annual instalment option is considered the most relaxed in terms of cash flow, as telcos need to pay 9.8% of the bid value each year. In contrast, the 10% upfront payment option requires telcos to pay 10.9% of the bid value every year from the third year onwards, according to the latest auction rules.
Analysts also believe that savings on spectrum usage charges (SUC) will not drive aggressive bidding in this auction, as current SUC levels for Jio, Airtel, and Vi are already low at 0.19%, 0.31%, and 0.8% respectively of adjusted gross revenue (AGR). This is especially true since spectrum purchases from the July 2022 auction do not incur any SUC.
Before the 2022 spectrum sale, SUC levels for Jio, Airtel, and Vi were higher at 2.92%, 3.08%, and 3.62% of AGR. These dropped significantly after the three telcos acquired large amounts of 5G airwaves in the 3.5 GHz and 26 GHz bands, benefiting from the zero SUC rule introduced in the 2022 auction.
