Bharti Airtel may not buy 5G spectrum and 'expensive' 700 MHz airwaves

In the upcoming spectrum auctions, Bharti Airtel may not buy the coveted 5G spectrum and the “expensive” 700 MHz premium airwaves. 

It plans to bid for airwaves in the 800, 900, and 1800 MHz bands for which its licences have either expired or are about to expire. 

“Airtel’s spectrum licences in the 800, 900 and 1800 MHz bands have either expired or are expiring. The company would require more airwaves in those bands. It has informed the Union government (the Department of Telecommunications) about the same,” said a person in the know.  Airtel declined to comment.

Gopal Vittal, the company’s managing director, chief executive officer of India & South Asia and executive director, in the post-earnings investors’ call had said that at the current prices — recommended by the Telecom Regulatory Authority of India (Trai) — the 5G spectrum would be unaffordable and hoped that the government would reduce prices. “Given that the state of the 5G ecosystem is still nascent, we would encourage, or we would hope that the government brings down the pricing of spectrum and reserve price of the spectrum and that is the stage when we would look seriously at 5G,” Vittal had said.

Bharti Airtel has spectrum in the 800 MHz band by the virtue of its buyout of Tata Teleservices. On October 12, 2017, the company had announced that it would acquire the consumer mobile businesses of Tata Teleservices (TTSL) and Tata Teleservices Maharastra (TTML) in a debt-free cash-free deal. According to the deal, Airtel would only incur TTSL’s unpaid spectrum payment liability.

The deal was made official in July this year when Bharti Airtel and Bharti Hexacom announced the merger of the consumer mobile businesses of TTSL and TTML with the two Bharti group firms. However, the spectrum available with Airtel after the merger is CDMA (code divisional multiple access) spectrum, which is an outdated technology. The firm requires a bigger chunk of the spectrum in the 800 MHz band for GSM (global system for mobile communication), 3G and 4G technology.

As far as 700 MHz is concerned, the company is reluctant to buy it as it feels it is expensive; it may skip the 5G spectrum for similar reasons, a source said. Airtel and Vodafone Idea had shown little interest in the auctions — while the former called the base prices “exorbitant”, the latter wants the auctions to take place in 2020. 

Experts say  the sector is bleeding and is not ready for an auction. The collective debt of the telecom sector hovers around Rs 8 trillion and there is no cash flow.

“Where is the money? Telecos’ balance sheets are overleveraged,” said Hemant Joshi, partner at Deloitte India, adding that India should benchmark its 5G base price with global experience.

Global brokerage CLSA had also said India’s exorbitant 5G spectrum cost is a big drag for a reasonable IRR or internal rate of return. Trai has recommended the sale of 275 MHz of spectrum in 3.3-3.6 GHz band, implying that individual operators could get 80-100 MHz spectrum in this band. 

“But, at Trai’s recommended reserve price of Rs 490 crore/MHz, operators will have to pay around $7 billion for 100 MHz spectrum, nearly four times that of (South) Korea,” CLSA said.

The Trai reserve price for the premium 700 MHz spectrum, which went unsold in the 2016 auctions, was reduced by more than 40 per cent to Rs 6,568 crore per MHz all-India from Rs 11,485 crore in 2016.

 Trai recommended a base price of Rs 4,651 crore for paired spectrum in the 800 MHz band covering 19 circles, Rs 1,622 crore per MHz for the 900 MHz band covering seven circles, Rs 3,399 crore per MHz in the 2,100 MHz band covering 21 circles, and Rs 821 crore per MHz in the 2,500 MHz band covering 12 circles. It also suggested Rs 960 crore per MHz for unpaired spectrum in the 2,300 MHz band on a pan-Indian basis.

 The central government earned Rs 65,789 crore from spectrum auctions in 2016. The bands sold were 2G, 3G, and 4G.