With operators committing to buy spectrum worth ₹1,50,173 crore in the auctions, their focus on monetisation will increase, driving tariff hikes towards the end of this calendar year (CY), various reports by analysts said on Tuesday.
Bharti Airtel (Airtel) and Reliance Jio (Rjio) will also benefit from the three per cent lower spectrum usage charge (SUC) rates, which along with tariff hikes prompts five to eight per cent upgrades to EBITDA estimates. However, with the significant delays in fundraising, capex constraint, existing gaps in 4G coverage Vodafone-Idea’s (VIL) 5G rollouts would likely lag peers, they said.
The 5G-related bands (700MHz, 3.3GHz, and 26GHz bands) were the most sought after, with 40-76 per cent of spectrum available in these bands being sold. The 1800MHz bands also witnessed decent demand, with 33 per cent of spectrum available being sold. Operators will have to pay the first instalment of ₹13,365 crore in the next few days and the remaining ₹1,36,808 crore in similar instalments over the next 19 years.
More margin benefits
“Besides higher tariffs, all three operators (Airtel, Rjio, VIL ) will see additional margin benefits from three per cent lower SUC rates. We now build in a 10 per cent tariff hike in the third quarter FY2022-23 and incorporate SUC savings, which drive 5-8 per cent upgrades to our FY24/25 EBITDA estimates for Airtel and Rjio,” Jefferies India said in its report.
Global market research firm Nomura also said that historically, Indian telcos have refrained from charging a premium for 4G plans (vs 2G/3G data plans). With potentially higher speed on offer and likely initial uptake from premium customers (smartphones above ₹15,000), there is a potential for telcos to charge a premium for 5G (vs 4G).
“In our view, 5G tariff plans would be a key monitorable in the near term, and 5G premium (vs 4G) may provide the next leg of average revenue per user (ARPU) uptick for the telcos,” it said.
Market share loss likely for VIL
Apart from bidding for 5G spectrum, both Jio and Airtel have also acquired a total of 60MHz and 55MHz spectrum in the 1800MHz and 2100MHz bands. With acquisition of spectrum in circles such as Delhi, Mumbai, Kolkata, Maharashtra, Gujarat, Kerala, Haryana, Uttar Pradesh (UP)-East, Rajasthan, Madhya Pradesh and West Bengal, both Airtel and Jio have taken the lead in terms of spectrum holdings (in the mid-band) in these circles and it could accelerate market share loss for VIL as these circles represent around 72 per cent of VIL’s revenues, said Credit Suisse in its report.
Bharti may have to step up
While telcos are still preparing for the 5G rollout, RJio’s aggression in acquiring higher spectrum in capacity as well as coverage band may translate to aggressive 5G capacity build-up, said Edelweiss Research.
“In such a scenario, we expect Bharti to also invest in the network. We note that Bharti will have to match RJio on spectrum footprint in order to protect its market share. Consequently, it would look at acquiring 700MHz spectrum in the next spectrum auction,” it added.