Jio spectrum debt burden 10% higher than Airtel at $8.6 billion; 5G rollout key focus area: AnalystsNEW DELHI: The spectrum auction spending has caused Reliance Jio spectrum debt burden to jump 144% to $8.6 billion, which is now10% higher than Bharti Airtel’s $7.9 billion. However, Vodafone Idea’s spectrum burden is still the highest among the private operators at $13 billion, analysts said. They added that higher spectrum now gives Jio flexibility in its 5G rollout and also supports its ambition for a 50% subscriber market.

In this auction, Jio was focused on renewing the crucial 800MHz and bought 58% of the spectrum available in this band at higher-than-expected spending of $4.7 billion. It also spent $3.1 billion on increasing its 4G network capacity.

Airtel’s $2.6 billion auction spending was 25% ahead of expectations but with 50% of its spending on 900MHz and 2300MHz to boost its network, surprisingly positively, CLSA said in a note. “Vodafone Idea’s auction spending was lower-than-expected at a mere $0.3 billion.”

“With 63% of the spectrum in this auction unsold, there will likely be cuts in reserve prices. Historically, the government has cut spectrum prices by 30%-40% if it saw no demand in the previous auction and this will be a significant positive especially for 5G. Further, in future 5G auctions with the 275MHz spectrum available in 3.3-3.6GHz bands alone (besides other bands) and only three operators, there will be good supply,” CLSA added.

Analysts at Morgan Standley said the higher spectrum gives Jio flexibility in its 5G rollout and also supports its ambition for 50% subscriber market share as data demand continues to rise on its 4G network.

Axis Capital, in its note, said that Jio’s move to strengthen 2,300 MHz holdings indicate its focus on 5G technology.

“Jio post spectrum acquisition has a minimum of 2×10 MHz in 1800 MHZ band and 40 MHz in 2300 MHz band across circles. With the aggressive spectrum acquisition, Jio seems to reduce the gap with the incumbents. The interest in 2,300 MHz spectrum can be attributable to the increasing popularity of the band for 5G deployment due to its better coverage,” analysts at Axis Capital said.

While the 2300 MHz band can be used to increase 4G capacity, it can also play a role in 5G deployment. “Jio has made its intention clear in the release, stating that the acquired spectrum can be used for transition to 5G services at appropriate time where it has developed its own 5G stack.”Jio, in an official statement, also highlighted that acquired spectrum can be utilized to transition to 5G services at an appropriate time.

Vodafone Idea has acquired 11.9MHz spectrum in five circles—partially renewing 5MHz in TN circle (900MHz band) and acquiring additional 4MHz in Karnataka (1800MHz band). This compares with ~44.4MHz of spectrum expiring across 900MHz and 1800MHz bands. “Such low participation by VIL is on expected lines and needs to be seen in context of its cash flow constraints and customer market share already lost,” Credit Suisse said.

“Post this auction, we see risks of VIL having disadvantage in 5G given its weaker balance sheet,” BoFa Securities said in a note separately.

Analysts also said that the auction will lead to upfront payment of Rs 279 billion by the telcos in March 2021 (Rs 200 billion as per government estimate) and deferred payment of Rs 498.9 billion to be made over 18 years starting from March 2024 (annual payment of Rs 62 billion per year).

“The cash outgo will be keenly watched given the high debt level of the incumbents and continued delay in tariff hike. This could lead to funding gap concern for Vodafone Idea given continued delay in raising funds, high debt level, and renewed pricing aggression in some segments,” Axis Capital said.

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