airtel: Jio, Airtel likely to see rapid revenue market share gains after 5G auction

Reliance Jio and Bharti Airtel are likely to see rapid revenue and subscriber market share gains at Vodafone Idea’s cost in the medium term, post the 5G spectrum auctions, say analysts. They added that loss-making Vi is likely to be forced to invest its pending capital raise of Rs 10,000 crore in sprucing up mainly its 4G operations to close the network gap with its rivals.

India’s top two telcos, they estimate, could each garner around 150-to-200 basis points (bps) gains over a two-year span after the upcoming 5G airwaves sale, while Vi is likely to cede more ground on this score. A basis point is 0.01%.

The spectrum sale is likely around May-June as the government is pushing for initial 5G roll outs by August 15, India’s Independence Day.

Analysts said Jio and Airtel have the balance sheet strength to invest top dollars in pan-India 5G airwaves and consolidate their mobile broadband play despite prospect of low returns on 5G spectrum spends in initial years. By contrast, cash-strapped Vi’s participation in the upcoming sale is likely to be muted in absence of a significant fundraise.

“Airtel and Jio should see an acceleration in revenue and subscriber market share gains at Vi’s expense in the medium-term after the 5G auction as both telcos will definitely target pan-India 5G airwaves to invest in this future broadband technology, which financially-weaker Vi won’t be able to match,” Nitin Soni, senior director (corporates) at global ratings agency Fitch, told ET.

CLSA backed the view, saying “Jio and Bharti will lead the 5G auction as both claim their network infrastructure is 5G-ready”.

Latest data collated by the regulator for the December quarter pegged Airtel, Jio and Vi’s RMS at 35.4%, 40.6% and 18.4% respectively.

Soni expects “Vi’s auction participation to be limited to a few circles as the Trai-recommended 5G spectrum reserve pricing (if accepted by the government) would prove stiff, given the telco’s balance sheet constraints and pending fundraise”.

Trai has recommended slashing the reserve price of 3.3-3.67 Ghz airwaves—the key 5G band—by nearly 36% to Rs 317 crore a unit and set the base rate of new mmWave bands (24.25-28.5 Ghz)—ideal for 5G backhaul needs—at Rs 6.99 crore per unit. But industry executives and analysts say the prices are still too high.

Analysts say even if Vi manages to secure its targeted Rs 10,000 crore funding from external investors soon, bulk of it would go to boost its weak 4G operation, especially as the telco may not find it financially viable to invest in an ambitious 5G roll out, given the likelihood of low returns in the initial 2-3 years.

They expect Vi to opt for a low-key 5G play and use its cash and expected funds from external investors to spruce up its 4G operations to arrest customer losses and boost ARPU in the near-to-medium term. This is since Vi, which has already lost out to Airtel and Jio on the 4G turf, could face stiff challenges in garnering meaningful revenues from 5G services in absence of relevant use cases and a devices ecosystem.

To be sure, BNP said Trai’s call for easier spectrum payment terms over 30 years and the option to surrender new airwaves are positives for Vi, especially as the latter already has large chunks of under-utilised spectrum.

Analysts, though, said any conservative 4G-focused strategy has a flip side, in that it could shave off Vi’s revenue and subscriber shares in coming years once 5G adoption rises.

UBS said “Bharti has another 12- to 24-month window of opportunity for market share gains from Vi, given its headstart on 4G, which could be further cemented, post 5G launch”.

Over the past three years, Vi has lost millions of customers and revenue share every quarter to Jio and Airtel. This, due to its inability to invest adequately in expanding its 4G network to match rivals on mobile broadband coverage.

Last month, Vi raised Rs 4,500 crore from its promoters—UK’s Vodafone Plc and India’s Aditya Birla Group. But it’s yet to close the targeted Rs 10,000 crore funding from external investors that it needs urgently to revive its 4G business and compete more effectively with Jio and Airtel. Vi has been in talks with a slew of private equity players such as Apollo Global for both equity and debt funding.