On Wednesday, the Cabinet approved the auction of the 700 MHz (megahertz), 800 MHz, 900 MHz, 1800 MHz, 2300 MHz, and 2500 MHz before March next year. The auction process involves selling of spectrum amounting to 2251.25 MHz at a steep valuation of Rs 3.9 lakh crore (at reserve price).
While the government has liberalised the telecom airwaves usage years ago, which essentially means any spectrum band can be used for any technology (2G, 3G, 4G, 5G), the global standards of 5G are emerging around low-frequency bands (sub-1 GHz), mid-band (3300-3600 MHz) and millimetre bands (26 GHz, 28 GHz, etc). It's believed that Wednesday's spectrum auctions are not for 5G, unless Reliance Jio decides to buy 700 MHz spectrum to launch 5G services next year - as announced by RIL chairman Mukesh Ambani recently.
Experts say that the chances of incumbents bidding for 700 MHz are minuscule. That's because the price at which 700 MHz has been valued by DoT is exorbitant. For instance, the value of 700 MHz alone (at a reserve price of Rs 2.3 lakh crore) is 59 per cent of the total airwaves that will be sold. Given the financial condition of incumbents like Airtel and Vodafone Idea, they are likely to give it a miss. Jio, on the other hand, seems to be the only telco that can potentially buy 700 MHz.
Even though a majority commercial 5G networks around the world rely on spectrum in the 3300-3800 MHz range, Europe is using 700 MHz band for 5G deployments in a big way, and the US has licensed even lower-frequency 600 MHz band. While Jio has reportedly asked Department of Telecommunications (DoT) to auction 700 MHz spectrum recently; it asked DoT to auction 700 MHz in 2015 as well but didn't buy anything in 2016 auctions.
"The 700 MHz spectrum may well prove to be the Trojan horse for entering the 5G spectrum ahead of official auctions since its technical feasibility has been demonstrated by Qualcomm. If the 5G auctions get delayed beyond Q1FY21, one can expect some creative deployments by those who bid for the 700 MHz spectrum in this round. Jio is well capitalised and in a strong position financially to bid, as is Airtel as it picks up Vodafone's high ARPU users. The key question is how Vodafone will play in this auction, and when 5G will be up for auction," says Utkarsh Sinha, managing director, Bexley Advisors.
At the recent IMC (India Mobile Congress) summit, Airtel chairman Sunil Mittal and Ambani differed on the timelines for 5G launch in the country. For instance, Mittal had said that India would be 5G in the next 2-3 years; Ambani said that Jio will pioneer 5G in the second half of 2021.
That's not all! Jio will have to shell out more to renew 115 MHz of spectrum in the 800 MHz band (that it had acquired and shared from RCom) in 19 circles. Besides, Airtel 's 57 MHz in the 1,800 MHz band and Vodafone Idea's 44 MHz in 900 MHz and 1,800 MHz are coming up for renewals. Analysts say that the renewals alone would cost Jio about Rs 28,000 crore, Airtel Rs 12,900 crore and Vodafone Idea Rs 8,300 crore at the reserve price.
Analysts at ICICI Securities believe that Airtel has already bought spectrum from Tata Teleservices, Telenor and Videocon in the circles where the spectrum is coming for renewals, and thus does not need to renew its entire spectrum.
"In our base case, we estimate Bharti to buy spectrum worth only Rs 5,800 crore in the upcoming auctions... the Vodafone and Idea merger has added significant spectrum in Vodafone Idea, and it may require to buy spectrum worth only Rs 1,900 crore in the upcoming auctions," said ICICI Securities in a report.
As such, in the recent quarterly earnings call, Gopal Vittal, managing director and CEO (India and South Asia) at Airtel told investors that the telco wants to have sub-gigahertz leg of spectrum across the country. It doesn't have sub-gigahertz spectrum in markets like Maharashtra, MP, Gujarat, Kerala, Haryana, and UP (West).
"There are some of the 1800 [MHz] band spectrum that is expiring. We are going to look carefully at whether we need it or not because overtime...spectrum that is being used for 2G is coming down every quarter and then there is of course capacity spectrum on the 2300 [MHz] band wherever we need it we might look at it but, by and large, I would say our spectrum holding in the mid band is pretty strong," Vittal had said.