The Adani Group has said it will limit its presence in the telcom sector to private enterprise network solutions, but analysts do not rule out the possibility of an event foray into consumer mobility services.

While Adani’s June 9 statements made it clear that the multi-billion-dollar conglomerate intends to purchase 5G spectrum for exploring private network solutions, particularly for their airport, port, logistics, power generation and transmission businesses, experts point towards past precedence, where Reliance Industries’ initial foray into telecom spectrum in 2010 was followed by the 2016 launch of Jio, which is now the leading provider of 4G services in India. 

As the stock market opened on Monday, the share price of Bharti Airtel plunged, in response to Adani’s weekend announcement, at ₹662.15 per share in the afternoon. Reacting to the announcement, entities such as Godman Sachs viewed this as negative for buy-rated Bharti Airtel and Reliance Industries. According to Goldman Sachs, the possibility of Adani entering into the consumer mobility space is quite high. “We believe it might make limited economic sense for enterprises to buy spectrum via the auction for their captive needs. This is because spectrum purchased via the auction is available for the entire service area (total of 22 in India), and not just for particular parts of a city or State, and is priced accordingly.”

According to Goldman Sachs, “the probability of such enterprises foraying into consumer network by making additional CAPEX over time is quite high. This is because the spectrum is usually a significant component of telcos’ overall CAPEX.” The report explained that there are instances in India where buying spectrum accounts for 50 per cent of the capital expenditure for an operator. 

Equity research firm Jeffries says this could potentially be a backdoor entry, and Adani’s foray into the telecom space appears similar to Mukesh Ambani’s 2010 bid for 2,300 MHz. “Adani’s intent to buy spectrum in upcoming auctions only for private use has uncanny similarities to Jio’s purchase of 2,300MHz spectrum in 2010 that could not be used for voice services. Spectrum bought through auctions can be used to offer commercial services in the future by taking a Universal Access Licence,” noted the Jeffries report.

Uncanny similarities

The Jeffries report noted that RIL’s foray into telecom has uncanny similarities to the current situation. The spectrum held by Reliance was not eligible for voice services when auctioned in 2010. In 2013, the government changed this condition and allowed 2,300MHz spectrum to be used for voice services. RIL got its Unified Access Licence soon after that and launched its services three years later. Similarly, while a CNPN licence may not allow Adani Group to launch commercial service today, these conditions could change.

Given that greenfield expansion for the 5G network still remains too expensive, a potential merger or partnership with Vodafone Idea could still be fair game.  Goldman Sachs notes that the government could potentially sell its 33 per cent stake in Vi, whether it will sell it to a new entrant remains unclear.  

Other analysts such as Bank of America note that there is no room for a new entrant into the consumer mobility space. “We see no viable business case for any standalone (non-4G) telco to enter the consumer mobility space given low tariffs, limited room to differentiate, lack of enough spectrum and lacklustre ROI. In theory, any telco looking to enter the mobility space, could acquire a struggling telco (Vodafone Idea).” They, however, do see room for a telecom operator in the enterprise space. Credit Suisse also notes that the possibility for Adani entering consumer services in the future is near non zero for the same reasons. 

According to sources, Adani Group has committed a token earnest money deposit in order to participate in the 5G auctions. Therefore, there is likely to be muted participation from the group in the bidding process, in order to purchase spectrum for private network solutions in specific LSAs.

Credit Suisse also noted that the reasons for Adani’s foray into private networks through participation in auctions remain unclear. “We believe that Adani Group’s foray to provide standalone 5G enterprise network solutions is a bit unclear, given that 5G enterprise use cases are still under pilot stages globally.”

Furthermore, Credit Suisse notes that it would have been far cheaper to go the allocation route for spectrum for private networks, which the Centre is committed to exploring in the next few years. 

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