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5G spectrum auctions: Why Reliance Jio's bid for the 700 Mhz band is a masterstroke

5G spectrum auctions: Why Reliance Jio's bid for the 700 Mhz band is a masterstroke

The much coveted 700 Mhz band, which went unsold in the auctions of 2016 and 2021, took centrestage in the latest 5G spectrum sale. Reliance Jio emerged as the top bidder, and it was no coincidence, say analysts.

 The auction now sets the stage for the nationwide rollout of 5G services in the world's second-largest mobile market. The auction now sets the stage for the nationwide rollout of 5G services in the world's second-largest mobile market.

The just-concluded 5G spectrum auctions are being touted as an all-round success. The provisional sale of airwaves not only fetched over Rs 1.5 lakh crore for the government, but it also allowed telecom operators to gain 5G spectrum without bidding much higher than the reserve prices.

The auction now sets the stage for the nationwide rollout of 5G services in the world's second-largest mobile market.

While Reliance Jio's Rs 88,078 crore (nearly $11 billion) bid to acquire 24,740 MHz of 5G spectrum might seem like a costly affair on the surface, telecom analysts reckon it is a bet meant for the future. And the Mukesh Ambani-owned firm's strategy to bid for the most sought-after (and expensive) 700 Mhz band was a smart and carefully executed one.

Credit: Mohsin
Credit: Mohsin Shaikh

Jio pipped its nearest rivals Bharti Airtel, Vodafone-Idea, and the new entrant Adani Data Networks, amidst high demand for 700 Mhz. Jio's win will leave other telcos "desperate", say analysts.

Speaking exclusively to Business Today, Rohan Dhamija, Managing Partner - Middle East and South Asia Region, Analysys Mason, says, "If Airtel [the number 2 telco in India] wants to compete against Jio, they need it [700 Mhz] desperately. Not having it will make them lose 2-3 per cent of market share."

And even if Airtel gets hold of 700 Mhz in the next round of auctions, it will likely have to pay a much higher premium.

"Airtel doesn't have as big a distribution as Jio. So, they will have to offset the cost somewhere else," Dhamija explains.

Jio, meanwhile, is expected to reap the benefits of, what telecom analysts call, a "comprehensive spectrum portfolio".

It includes a readily deployable sub-Ghz band (less than 1 Ghz, in this case 700 Mhz) option, a high band capacity-layer option in the form of C-Band (3.3 Ghz), and also spectrum in the mm-Wave band.

"The mix [of bands] delivers significant benefits, which far outweighs the cost associated with the 700 Mhz band acquisition," remarks an analyst on the condition of anonymity.

Why 700 Mhz became the 'hot' band

The 700 Mhz band had gone unsold in the telecom auctions of 2016 and 2021. However, this year, it became a hot property for telcos. What could be the reason behind that?

Sub-Ghz bands (usually in the range of 700-Mhz and 900 Mhz) are said to be ideal for wireless applications. Additionally, these cover long distances (upto 7-10 kms) and consume low power.

The 700 Mhz band also offers better indoor penetration in dense urban geographies like the Delhi, Mumbai, Kolkata, Pune circles. It can achieve more than 300 Mbps of download speed in trial conditions, according to Qualcomm. The band is already deployed by telcos for 4G services across most of India's 22 telecom circles.

A whitepaper by Analysys Mason states: "An operator having the sub-Ghz spectrum in its 5G layer can gain between 200-300 basis points (2-3 per cent) of total subscriber market, and a much higher number (>10 percent market share gain) over an operator that does not have a sub-Ghz layer in its 5G rollout."

"It will deliver significant revenue [market share], and cost-related benefits for Jio vis-a-vis the competition," says Dhamija.

In contrast, the highest band on offer, which is the 26 GHz frequency (acquired by Adani Data Networks), might offer higher speeds of over 1 Gbps, but is constrained to a coverage area of just a few kilometers.

Its coverage can even be disrupted by trees and buildings, and is not ideal for a country like India. Hence, the 26 GHz band is primarily used in limited-radius industrial zones.

For the Adani Group, the use case is likely to be in their own business hubs, airports, and other industrial zones. The Gautam Adani-owned firm said in a statement that it "looks to link its Data Centres through a network of submarine and terrestrial cables, building the largest industrial operations cloud in the world."

Efficiencies through a mix of bands

Now, what are the benefits of acquiring a mix of bands instead of just one high- or low-frequency one?

Besides the aforementioned advantages of the coveted 700 Mhz band, a C-band can bring in added benefits too.

The high-frequency band is used in areas where signals can become degraded due to heavy rain or other intense climate-related conditions, as per market intelligence firm Gartner. The band is mainly used in Asia, Africa and Latin America.

And finally, the mm-wave band is expected to provide a significant capacity layer to Jio in high-traffic hotspots, including railway stations, stadiums, other public venues, etc.

"It will also drive exceptional user experience for use cases such as streaming and cloud-gaming," according to Analysys Mason.

The three bands put together are said to achieve a higher throughput, which in turn will improve customer experience across urban and rural geographies in India.

In terms of cost efficiencies too,  having a readily deployable sub-Ghz band (in addition to C-band), is said to reduce coverage site requirements in rural areas, and bring down capex of telcos by almost 40-50 per cent, say analysts.

How costly will 5G be for users?

Contrary to popular perception, 5G tariffs may be at par with 4G rates for individual consumers. Dhamija asserts, "Nowhere in the world is 5G priced higher than 4G in terms of per-GB rate."

However, 5G is expected to shore up ARPUs for telcos by at least Rs 50 to the Rs 225-250 range in the next 12-24 months.

"5G tariffs will not be more expensive than 4G. But because customers will end up consuming more data on 5G, since it's faster and better, ARPUs will see a volume-driven growth instead of a tariff-driven one," he tells BT.

In most developing markets, including nearby Bangladesh, about 1.5-2 per cent of GDP per capita is spent on telecom, which includes product (handset) and services. In our country, however, that spend is much lower because tariffs have been among the cheapest in the world. With the advent of 5G, however, that stands to change in the next 3-4 years.

"It also provides a significant opportunity to Jio to further strengthen its competitive positioning in the market for years to come," Dhamija adds.

Published on: Aug 02, 2022, 5:26 PM IST
Posted by: Vivek Dubey, Aug 02, 2022, 5:21 PM IST