Here's why 4G spectrum auction is more important for Reliance Jio Infocomm than Airtel and Vodafone Idea
Coming auction crucial for Jio Infocomm as licence to use key 4G band in 18 circles expires in mid 2021.
They added that Bharti Airtel and Vodafone Idea will also need to buy back their expiring airwaves in eight circles each, but mostly in the less expensive 1800 MHz band, also used for 4G.
Such a scenario leaves Jio facing a similar situation that Bharti Airtel, erstwhile Vodafone India and Idea Cellular (now merged into Vodafone Idea) had found themselves in during the February 2014 and March 2015 auctions when they had to buy back their own expiring spectrum in the 900 Mhz band in several circles at exorbitant rates, or else risked losing the mobility business, a development that has contributed to their current high debt levels, and financial stress.
“RCom’s 800 Mhz spectrum has played a critical role in Jio’s pan-India 4G launch, and an early auction will help Jio regain these crucial airwaves to ensure business continuity and maintain quality of its countrywide 4G coverage, especially as the ecosystem for other sub-Ghz bands such as 700 Mhz is not developed, besides their exorbitant pricing that makes them unfeasible to buy in an auction," Rajiv Sharma, co-head of research at SBICap Securities, told ET.
Jio uses bankrupt telco RCom’s 800 Mhz spectrum through a 21-circle spectrum sharing pact to deliver countrywide 4G coverage. But those airwaves in 17 circles will expire in July, 2021, and in one, in August, 2021, a person aware told ET. So, nearly 49 units of 800 Mhz spectrum across these circles 18 circles will expire, and around 59 MHz of such spectrum will up for sale in the next sale, as per the regulator’s recommendations.
Jio though has airwaves in the 1800 MHZ and 2300 MHz bands in all 22 circles, but the 800 MHz band is touted to be the most efficient, and hence more expensive, for 4G use, say analysts.
A person close to Jio said “the company is definitely in favour of an early spectrum auction to address the massive demand for 4G services”.
Rohan Dhamija, partner at Analysys Mason, said the financial strength of rivals back in 2014 and 2015 ensured bidding was intensive, making it more expensive for Vodafone Idea and Airtel to buy back their airwaves. But the situation is different now.
“Vodafone Idea and Airtel won’t really be in a position to engage with Jio in an all-out bidding war for sub-Ghz spectrum like in the past auctions of February 2014 and March 2015 since their balance sheets remain stretched,” said Dhamija. He added that the two also need cash to buy back their own 1800 Mhz spectrum that is coming up for renewal in some circles around September-October 2021.
Brokerage Motilal Oswal said Airtel's spectrum in the 1800 Mhz band will come up for renewal in September 2021 in seven circles and also in the 900 Mhz band in Tamil Nadu. Industry sources, added that Vodafone Idea's 1800 Mhz spectrum also expires in eight circles around September-October 2021.
At press time, Jio, RCom, Airtel and Vodafone Idea did not reply to ET's queries.
Another key reason behind Jio’s greater need for 4G airwaves to maintain coverage quality is its modest pan-India market share of liberalised, or auctioned, spectrum at 26%, which is well below Vodafone Idea (40%) and Bharti Airtel (35%).
Matters, they said, could become more challenging for Jio once both incumbents conclude refarming their 2G and 3G airwave holdings for 4G services.
ICICI Securities, in fact, expects Vodafone Idea and Airtel to be in a stronger position to expand 4G data capacity, especially since they “will have around 33% and 28% more 4G carriers than Jio respectively” after concluding the refarming of their 2G/3G spectrum for 4G services.