In 5G race, Jio on steroids to take on a muted pack led by Bharti

Telecom operators are ready with their war chest and strategies to bid in the upcoming 5G spectrum auction starting Tuesday. While the four players in the race including Reliance Jio, Bharti Airtel, Vodafone Idea and Adani group, have set themselves up to bid for spectrum worth ₹1.9-lakh crore, the actual bids are likely to be around ₹1.5- lakh crore going by the past two auctions.

“In the 2021 auctions for 4G spectrum, Reliance Jio utilised 77.9 per cent of their earnest money deposit, while Airtel used 87.7 per cent. The auction for 5G could see higher utilisation of EMDs given that Reliance Jio is eyeing bandwidth in the 700 MHz band,” said an industry expert.

_{Podcast | Ayushi Kar on what’s at stake for the telecom players and how fast is 5G telephony likely to make a mark in India’s telecom space}

A telecom operator can spend up to 9X the EMD in the auctions. For example, Reliance Jio has deposited ₹14,000 crore and that allows it to acquire spectrum worth ₹ 1.26-lakh crore. Airtel has submitted an EMD of ₹5,500 crore which enables it to buy airwaves worth ₹49,500 crore.  In comparison, Vodafone Idea, struggling under a huge debt pile, has positioned itself to buy spectrum worth only ₹19,800 crore which will be enough to acquire 5G airwaves in a few circles.  The new entrant Adani group, despite having massive financial clout, is looking to spend a maximum of only ₹900 crore dampening all expectations of a big foray into the mobile telephony space.

Jio vs Airtel

“It is clear that Reliance Jio is signaling that it will be the most aggressive bidder in the 5G race, followed by Airtel’s more muted strategy looking to acquire a reasonable spectrum in mm-wave and 3.5 MHz (core 5G bands) while giving the long-distance 700MHz a miss. Vodafone Idea is likely to be out of the race with a minimal deposit submitted, which effectively rules out the possibility that its 5G deployment will be able to compete with Reliance Jio and Bharti Airtel,” said an executive.

The general consensus amongst analysts is that the market is certainly heading towards a duopoly. A Nomura report concluded earlier this month that the telecom market could become a virtual duopoly, with Jio and Airtel benefitting from Vi’s demise.

However, whether Bharti Airtel will be a veritable contender to the Jio juggernaut, depends on whether Reliance Jio bid for the coveted 700MHz spectrum. Both Bharti Airtel and Reliance Jio are buying substantive amounts of the mm-wave and 3.5GHz 5G spectrum, 800MHz in mm-wave and 80-100MHz in 3.5GHz spectrum as per projections. These are the core 5G bands, needed for the deployment of 5G services.

But the key differentiator regarding the quality of 5G services for an operator will be if they have spectrum bands below 1GHz to deploy 5G. This will reduce the capital expenditure for the operator to lay out networks and improve coverage (over long distances and indoors). In this context 700MHz band is the key band available in these auctions and therefore is priced substantially higher than other frequency bands.

Jio eyes big pie

Sources told BusinessLine that Reliance Jio is seriously considering buying a substantive portion of 700MHz, leaving very little for Bharti Airtel.  But that could delay Jio’s plans for a potential IPO since it will increase their debt to EBITDA ratio.

If Reliance Jio starts out the 5G race with substantive sub GHz presence, according to an expert, the industry will have to make 600MHz (which is also available for auctions) technologically relevant. An expert told BusinessLine on conditions of anonymity, that band plans will need to be changed in order to align Indian band plans with international ones, to make 600MHz relevant. For instance, American operators are likely to start using 600MHz of 5G once the Federal Communications Commission clears this band of 5G deployment.

COMMENT NOW