Bharti Airtel may be biggest spender in 2024 spectrum auction with Rs 10,400-cr outlay: Analysts

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Bharti Airtel is likely to be the biggest spender in the 2024 spectrum auction with an outlay of Rs 10,400 crore as the telecom major aims to firm up its sub-1GHz holdings and raise its share of 1800-MHz and 2300-MHz bands, according to analysts.

Bharti Airtel’s earnest money deposit (EMD) makes it eligible to bid for a maximum of Rs 12,600 crore of spectrum. It is facing renewals in six circles of Assam, Bihar, J&K, Orissa, UP East and West Bengal.

“In these six circles, we expect it to bid for 900MHz. In Kerala, Bharti may bid for 0.4MHz to take its total 900MHz holdings to 5MHz. In Andhra Pradesh , Karnataka, Rajasthan and Tamil Nadu, it may be bid for 900MHz to take its holdings to 10MHz. In Uttar Pradesh West, where it holds no 900MHz, we expect it to bid for 5MHz,” IIFL Securities said in its analysis note seen by Moneycontrol.

The brokerage said that in the 1800MHz band, Bharti may bid for 1.8MHz in West Bengal taking its holding to 10MHz. “In the 2300MHz band, Bharti may use the current auction to take its total holdings to 1x40MHz in all six circles with supply. This will help augment 4G capacity in these circles (these are important ones such as AP, Delhi, Karnataka, Kolkata, Mumbai and TN).”

While some of this spectrum was available in 2022, the Sunil Mittal-led telco’s recent rural thrust and its improved balance sheet has strengthened the case for more 900MHz spectrum. “This is also in line with Bharti’s calibrated rollout strategy,” IIFL Securities said.

Bharti Airtel has renewals for 42MHz of spectrum in 1800MHz and 900MHz band in six circles. At reserve prices, this would result in spending of Rs 38 billion.

Although Bharti has de-risked its operations by acquiring spectrum in 900/1800MHz bands in previous auctions, Jefferies expects it to renew the bulk of its spectrum in these markets to protect/increase its market share.

"It may also bid in certain circles to increase its holding in 800MHz/1800MHz bands to 10-15MHz. This could lead to a maximum spend of Rs79bn. Our expected spends are 4-8x of its Rs11bn EMD - in line with the range seen in previous auctions," Jeffries said in its analysis.

The brokerage added that if the telcos opt for the most relaxed payment option, government receipts in FY25 would be Rs 1,200 crore.

Reliance Jio, despite holding adequate spectrum, is expected to bid for the 1800-MHz band only in four circles even with the highest earnest money deposit (EMD).

Jio, as per analysts, has adequate spectrum across 4G (800/1800/2300MHz bands) and 5G (700/3300MHz/26GHz) bands, hence limited participation is likely.

“We see this as a signalling of intent rather than actual bidding. A telco cannot bid for more spectrum than the level determined by the EMD. However, a high EMD can be used to signal intent. It also gives flexibility for a telco to bid even for far lower spectrum than the level determined by the EMD as the EMD is refundable (if a telco bids for at least the minimum spectrum in one circle). JIO’s EMD makes it eligible to bid for a maximum of Rs 36,000 crore worth of spectrum,” IIFL Securities said.

Jefferies added that Jio may increase its spectrum holding in some circles in the 800MHz band and increase its holdings in the 3300MHz bands to 130MHz across all circles, which could lead to a maximum spectrum spend of Rs 120 billion. "This is 4x of its EMD - in line with the 2-6x ratio of its actual spend and the EMD submitted in previous auctions."

Vodafone Idea, on the other hand, may renew 900 MHz in two circles. The telco is facing 900 MHz renewals in two circles - UP West and Bengal. “We expect the telco to pick up 5MHz and 4.6MHz in this band. This entails Rs 1,200 crore outlay,” IIFL said.

Vodafone Idea has renewals for 12MHz of spectrum in the 1800MHz and 900MHz band in two circles.

At reserve prices, this would result in spending of Rs 15 billion. Given that Vodafone Idea has ample spectrum in renewal circles in the 1800MHz band, it may not renew its spectrum in the 1800MHz band; however, its renewal in the 900MHz band is likely, especially in the West Bengal circle, Jefferies said.

"We expect its spending to range between Rs2-10bn, implying a spend/EMD ratio of 1-3x - lower than 4-9x seen in the past," Jefferies said.

Jefferies said it expects a maximum spectrum demand of $2.5 billion, implying that 21 percent of the spectrum value is sold. This is much lower than the value of spectrum sold in any auction since 2014. We do not expect excess demand in any circle/band, implying that spectrum may be sold near reserve prices.

IIFL expects all three telcos to bid only for 13 percent of the Rs 96,300 core worth of spectrum on offer at the reserve price. “We expect spectrum outlay of Rs 900 crore/Rs 10,400 crore/Rs 1,200 crore for Jio, Airtel and Vodafone Idea respectively,” it added.

The telecom department (DoT) will auction spectrum in eight bands on June 6, lower than the 10 bands it had put on sale in 2022. The two bands missing from 2022 are 600MHz and 700 MHz bands. The 600 MHz band found no takers in 2022, 700MHz band now has a limited supply after Jio’s win in 2022 and subsequent allotments to PSUs).

Spectrum on offer accounts for 17 percent of the current spectrum in use. Reserve prices are set at or slightly above the 2022 final price. Flexible payment terms from 2022 have been retained, but DoT has increased the interest rate for NPV preservation from 7.2 percent in 2022 to 8.65 percent in 2024.

While fresh spectrum carries nil SUC, the incremental gains will be limited as SUC is already less than 1 percent for the three telcos, IIFL Securities said.