Vodafone Idea’s higher-than-expected spending in the 5G auction, which concluded on June 26, will further moderate a market share shift towards Bharti Airtel and Reliance Jio, analysts said.
They added that the Indian telecom operators' selective bidding in the spectrum auctions suggests that they plan to fully monetise their current investments before committing new capital expenditure.
The auctions expectedly saw low bid intensity, and most of the spectrum was acquired at the reserve price. The 900 MHz and 1,800 MHz bands saw the highest demand.
This round of auction was delayed twice, with June 6 the last.
While Vodafone Idea faced a 900MHz renewal in two circles, the telco picked up the spectrum in this band in seven more circles.
In many of these bands, Vodafone Idea picked up fractional amounts of spectrum, like 1.2MHz or 2.4MHz. Interestingly, Vi has also acquired spectrum in the 2,500MHz band in a single circle.
“Vodafone Idea's spectrum spend was above the upper end of our expectations. While Vi did not buy back its entire spectrum coming up for renewal, it did spend on adding spectrum mainly in the 900MHz band to enhance the experience for its 4G users. An increase in spectrum, post a hefty capital raise, suggests that the company is preparing for network rollouts. This should further moderate the market share shifts towards Bharti Airtel and Reliance Jio,” Jefferies said in a note seen by Moneycontrol.
“In our view, this spectrum could be used to park 2G traffic, as Vi frees up blocks of 5MHz from its existing holdings and re-farms it for 4G (and eventually 5G),” IIFL said in a separate note.
The subdued participation suggests that the peak of competitive intensity in the Indian telecom industry might have passed, they said, adding there will likely not be any significant change in competitive dynamics among Reliance Jio, Bharti Airtel and Vodafone Idea.
Telecom operators secured radio waves worth over Rs 11,300 crore in the latest spectrum auction, the Union government said on June 26. The government is expected to receive Rs 11,340 crore as revenue by auctioning a total of 141.4 MHz spectrum.
Worth of spectrum companies acquired
Bharti Airtel acquired spectrum worth Rs 6,857 crore while Reliance Jio and Vodafone Idea bought spectrum worth Rs 973.62 crore and Rs 3,510.4 crore, respectively.
Airtel acquired 97 MHz spectrum in the 900 MHz, 1,800 MHz and 2,100 MHz frequency bands for Rs 6,857 crore. Jio acquired 14.4 MHz spectrum in the 1,800 MHz band for Rs 973.62 crore. Vodafone Idea acquired 30 MHz spectrum in the 900 MHz, 1,800 MHz and 2,500 MHz for Rs 3,510.1 crore.
“With the conclusion of the auctions without any surprises, the ability to take tariff actions should resume. We believe this is likely to have contributed to the sharp stock reactions on June 27. We have baked in tariff hikes of 25 percent spread over 2Q/3QFY25,” analysts at JP Morgan said in a note seen by Moneycontrol.
Analysts at Jefferies, in a separate note, said that selective bidding by telcos in the current auctions suggests that the operators want to adequately monetise their existing investments before going in for fresh capex. “This bodes well for tariff hikes. We expect a 20 percent tariff hike in Q2FY25 and another 10 percent hike in FY27,” they added.
Citi Research said that the next six months could be marked by several event catalysts, including tariff hikes, potential 5G monetisation, granularity on Vodafone Idea’s capex and tower addition plans and progress on the AGR (adjusted gross revenue) case.
The bidding intensity in this year’s spectrum auction was expectedly low with the 900 and 1,800 MHz witnessing the highest demand, followed by a marginal demand for the 2,100 MHz band.
The other bands did not draw any interest. Although all telcos participated in the auction, Bharti Airtel bought the most, followed by Vodafone Idea and Reliance Jio.
The low intensity of bidding was also visible in the value of bidding, which was at reserve price for almost all the circles, except 1,800 MHz in the Bihar and West Bengal circles, where the winning price was marginally above the reserve price (~2.5% and 1.5%, respectively).
“We believe this was because telcos had acquired adequate spectrum for 5G in 2022, at least to meet their requirement in initial years,” Axis Capital said in a note.
The amount spent by Airtel and Jio can be easily absorbed by their respective strong balance sheets. “The amount is also relatively small in context to VIL’s balance sheet size,” Axis Capital said.
Telecom operators can choose to pay either a partial amount, the full amount upfront, or divide the total into equal instalments over 20 years, with an interest rate of over 8 percent.
As a result, the first instalment from the total auction proceeds in FY25 could be as low as Rs 567 crore.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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