However, telecom players may look at selectively adding spectrum in their respective existing bands to boost capacity without increasing capex.
Despite a steep cut in the price of 4G spectrum in 700 MegaHertz band and 5G waves being put for sale, the debt-laden telecom industry is unlikely to be enthusiastic for the next round of spectrum auction if it happens anytime soon.
Also for the first time, 5G spectrum (3300-3600 Mhz) will be auctioned. But an ecosystem for both 700 Mhz and 5G spectrum is yet to be fully developed.
Though the date for auction is yet to be decided by the government, experts feel if a spectrum auction happens in the ongoing fiscal, it will generate a lukewarm response from the telecom players. Until stability is achieved in the sector, which is bearing the brunt of aggressive competition since the launch of services by the new player Reliance Jio, the industry is unlikely to bid for spectrum in a big way.
"We expect telecom operators to refrain from investing in the 700 MHz and 3300 Mhz band ecosystem mainly due to: relatively immature ecosystems, strained balance-sheets and significant availability of spectrum, which implies they may not lose out," research firm Edelweiss said on Thursday.
However, telecom players may look at selectively adding spectrum in their respective existing bands to boost capacity without increasing capex.
The industry, especially the incumbents, have been facing severe financial stress as the profits and revenues have taken a hit due to dirt-cheap tariffs. Reliance Jio started a tariff war with its entry in September 2016 and there are no signs of tariffs picking up anytime soon. Now, three private players have left in the industry – Bharti Airtel, Vodafone-Idea combine and Reliance Jio after consolidation.
Telecom Regulatory Authority of India (Trai) on Wednesday had recommended reserve price for next generation 5G spectrum, which will be auctioned for the first time in India, at Rs 492 crore per Mhz, while lowering the price for premium 4G band – 700 Mhz, by almost 43% at Rs 6,568 crore per Mhz.
For 700 Mhz, the earlier recommended reserve price was at Rs 11,485 crore per Mhz, but this spectrum remained unsold during the last auction in October 2016 because of a steep price. Other bands including 800 Mhz, 900 Mhz, 2100 Mhz, 2300 Mhz and 2500 Mhz will also be up for sale.
BNP Paribas analysts are of the view that industry revenue and profitability have worsened significantly post the previous auction which is not reflecting in the spectrum price recommended by Trai.
"Incumbents are yet to deploy some of their existing spectrum and we see minimal demand from them in the medium term. While Jio has already put to use most of its spectrum, its utilisation is 20%. Spectrum in India has decisively turned into a buyer's market and operators are likely to acquire spectrum only as and when they need it; they are likely to be selective based on their needs rather than accumulate spectrum. At current tariffs, operators' revenues are not able to cover their operating costs and network capex... They will be very cautious while bidding in any auctions conducted in the medium term," BNP Paribas said in a note.
Experts say even 5G spectrum looks to be expensive with Rs 9,840 crore per block of 20 Mhz pan India.
"Telecom operators are unlikely to participate in this spectrum auction as a significant chunk of spectrum is available. Even 5G standards continue to evolve and there is a lack of commercial use cases for 5G. Besides, operators have significantly invested in 4G technology," Edelweiss analysts said.
The standards for next generation 5G technology are yet to be formalised in India. 5G will have artificial intelligence, Internet of Things, machine-to-machine communications and other virtual healthcare and automated services with much higher data speeds. Globally, only South Korea has auctioned spectrum for 5G, while the US and Europe will do it by this year end.
According to Trai, in the last one year, 4G has been taking off in real sense and the data usage has increased exponentially in India. Total mobile data usage has increased from 462 petabytes in the quarter ending September 2016 to 7,879 petabytes in the quarter ending March 2018, thereby showing an increase of over 17 times.
Morgan Stanley said in a note that top operators have significantly improved their spectrum footprint via bidding in the prior auctions and acquisition of smaller operators. They are still in the process of rolling out 4G networks on the existing spectrum. Also, with three private operators eventually remaining in the industry, we believe there will be enough spectrum left for everyone. "Participation in auctions may happen once the ecosystem matures and network capacity constraints on the existing spectrum start becoming visible which will be some time away."
When Signal's Weak
- Incumbents are yet to deploy some of their existing spectrum and we see minimal demand from them in the medium term
- However, telecom players may look at selectively adding spectrum in their respective existing bands to boost capacity without increasing capex
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