After the recently concluded auctions, telecom investors would be curious to know about the future prospects of 5G from the companies. For Bharti Airtel Ltd investors, the good news is that the capital expenditure (capex) is unlikely to rise.
The management aims to accelerate the 5G rollout and plans to cover 5,000 towns and major rural areas by March 2024, it said in the June quarter (Q1FY23) earnings call. Hence, Airtel’s capex will increase over the next 18 months, but investment in 4G will be replaced by 5G, leaving the capex profile unchanged over a period of three years. Also, Airtel is unlikely to make significant spectrum purchases in the coming years.
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Analysts at Ambit Capital Pvt Ltd said, “These comments are reassuring as they validate Airtel’s frugal spectrum purchase strategy which was aided by opportunistic mergers and acquisitions.” Capex uncertainty is now behind.
In Q1, capital expenditure for Airtel’s India mobile business grew 41% sequentially 3,694.5 crore.
Airtel won 19,868 MHz (MHz) of spectrum in the frequency band in the 5G auction. However, unlike competitor Reliance Jio, it did not bid for the expensive 700 MHz frequency band as Airtel believes its existing spectrum holdings are sufficient to offer quality 5G services.
That said, the return from investment in 5G on revenue growth is not very clear. Management noted that globally, 5G by itself did not provide any operator with incremental average revenue per user (Arpu). Analysts agree. “The use case in 5G is still evolving and the benefits of private 5G networks are yet to be established. We expect revenue from enterprise clients to be more gradual as the use-case evolves and it is unlikely to contribute any meaningful revenue in the near future, analysts at ICICI Securities said in a report on August 10.
Still, since the 5G strategies adopted by Airtel and Jio differ significantly, investors will keep a close watch on the execution, analysts said.
Meanwhile, after the 5G auctions, there is a near-term tariff hike for the telecom sector, which is crucial to Arpu’s outlook. Moving ahead with Airtel’s Arpu, as the chart shows 183 in Q1. Its Management Is Convinced To Get An Arpu 200 more 300, ultimately, supported by tariff hikes.
In the past one year, Airtel’s stock has gained 15%, beating the Nifty 50’s nearly 8% growth. Analysts said any disappointment or delay on tariff hike could negatively impact investor sentiments towards the stock.
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