explained | How will the sale of 5G spectrum affect the sector?

When will the mass roll-out happen? Will better services help telecom providers improve their debt position?

When will the mass roll-out happen? Will better services help telecom providers improve their debt position?

the story So Far: Telecom spectrum auctionFifth generation (5G) technology to offer services, including bands, concluded on Monday Record bids received in excess of ₹1.50 lakh crore, Telecom Minister Ashwini Vaishnav said 71 per cent of the 72,098 MHz spectrum was sold. Reliance Jio emerged as the top bidder, claiming 24,740 MHz of spectrum for a period of 20 years. Bharti Airtel stood second with 19,867.8 MHz spectrum and Vodafone-Idea with 6,228.4 MHz spectrum stood third. The mop-up from bids for 5G airwaves was almost double compared to last year’s 4G. According to the Telecom Minister, “The spectrum purchased is enough to cover all the circles in the country. [In the] In the coming two-three years, we will have good 5G coverage.” According to the ministry, the roll-out of 5G services is likely to start by September/October.

What did telecom service providers shop for?

Spectrum in three bands, namely the low (consisting of the 600, 700, 800, 900, 1800, 2,100 and 2,500 MHz bands), middle (3,300 MHz) and high (26 GHz – 1 GHz equals 1000 MHz) frequency bands were assigned. . for auction.

editorial | Dialing Right: 5G Spectrum On Sale

Low-band spectrum is popular for providing wide coverage, however, speed and latency can only be an incremental upgrade over 4G. Speed ​​is subject to proximity to the source. On the other hand, higher band spectrum can provide speeds of up to two Gbps, but is, at times, unable to travel distances of less than a mile. Additionally, signals from the low-band spectrum can travel through windows and walls which is not the case with the high-band.

The mid-band spectrum falls somewhere in between the two. It can carry big data over long distances and maintain increased speed.

The mid- and high-bands attracted the most attention at auction and sold 76% and 72% of the available spectrum, respectively. Bharti Airtel and Reliance Jio combined, claimed for 87 per cent of the total purchased spectrum in these two bands, strengthening their operational capability in the 5G market.

Telecom companies consider their current financial position and priorities while bidding for spectrum. Thus, not all spectrum on offer is acquired. For example, 700 MHz of spectrum did not sell in 2016 and 2021. This time, Jio emerged as the only entity to spend ₹39,270 crore on the ‘premium band’, which is known to have the ability to penetrate as well as improve indoor and rural coverage. walls and properties more effectively. Focusing on alternative strategies, operators had not previously opted for this band due to their financial position and high prices.

Thus, reflecting its financial health, Vodafone-Idea spent a little over a quarter of the combined average spending of its compatriots. It also focused on mid- and high-band spectrum.

The latest entrant in this space, Adani Data Networks, paid ₹212 crore to acquire 400 MHz in the high band. The company had earlier made it clear that it “should not be in the consumer mobility space.” Instead, it will provide private network solutions with enhanced cyber security across its airports, ports and logistics, power generation, transmission, distribution and various manufacturing operations.

The 600 MHz category found no takers, which, according to the ministry, the device ecosystem for the band was not yet developed for mobile telephony. However, the band could be significant in a few years, it said.

What will it be used for?

“While the 3,300 MHz band will be critical to 5G technology deployment going forward, the appetite for the 1,800 MHz band stems from increasing mobile broadband usage and thus the need to improve network efficiencies.” ICRA Vice President and Sector Head Ankit Jain said Hindu, He said the quantum of spectrum put up for auction was optimal, as seen from the fact that apart from a circle in the 1,800 MHz band, spectrum was sold only at the reserve price. The high reserve prices caused some uneasiness in the industry when the auction was approved. The fact that a significant portion of the bids were on reserve prices reflects the competitive spirit in the industry.

What is the post-auction outlook for the industry?

Telecom in India is a price-sensitive and competitive market. This sector is capital intensive, and it has to continuously invest in up-gradation of technologies and improvement of services. The tariff war started by the entry of new players in the last decade resulted in severe financial crisis for the companies. Hence, investments made for 5G could potentially put further pressure on the sector’s debt position.

Manish Gupta, senior director, CRISIL Ratings, argued that with the latest spectrum purchase, the debt could rise to around Rs 6.1 lakh crore. He said that the adoption of 5G services will directly depend on the premium charged from 4G services. Therefore, despite two rounds of major tariff hikes in December 2019 and November 2021, there may be another hike in rates (for 4G services) in the current fiscal. The sector’s capacity to meet its financial obligations should improve in the next financial year, once the expected tariff increases and the full benefits of 5G launches are realized.

What upgrades are required for 5G implementation?

The mass roll-out of 5G is likely to take some time. Mr Gupta said that the large scale roll-out can happen only in the next financial year as telcos need to upgrade to fiberisation first. “Telcos are also required to start commercial services in at least one city of each circle by the end of the first year of obtaining the licence, as per the roll-out obligations,” he said.

What about the debt situation?

Irrespective of debt levels, ICRA pointed to the fact that cash flows arising from the business were improving. The latest spectrum auction will also improve the operational viability of the sector by reducing the repayment burden. For the first time, there was no mandatory requirement to make any advance payment. Payment for spectrum can be made in advance in 20 equal annual installments at the beginning of each year. This can potentially reduce operating costs for telcos, in turn, providing an opportunity to incentivize their respective ARPU (average revenue per user). “Thus, while the credit metrics for the industry may look stretched, an improvement in the cash-flow position coupled with an improvement in ARPU levels translates into a ‘stable’ outlook for the industry,” Mr. Jain said. However, according to Mr. Jain, 5G may not make much sense for rural India, as operators tend to pick only those areas where they can generate substantial returns.