Telecom's share in overall capex may rise in next 5 years on 5G push

Capex of telcos in FY18-22 went up nearly two and a half times to Rs 3.45 trn

The telecom and digital sector witnessed the biggest increase in its share in the overall capex across industries in the past five years — up from 9 per cent during FY13-17 to 17 per cent during FY18-22. Its share in the capex pie is likely to get even bigger in the next five years as the roll-out of 5G services picks up pace.

According to a report by Centrum Broking that looked at data from over 150 companies across sectors, capex spends of telecom companies in FY18-22 went up nearly two and a half times  to Rs 3.45 trillion, against Rs 1.44 trillion in the previous five years. It has made the telecom and digital sector the second-largest capex contributor, behind only oil & gas between FY18 and FY22 (the oil & gas capex was Rs 6.29 trillion). In FY13-17, it was fifth in the pecking order, behind oil & gas, auto, metals & mining, and utilities.

The study looked at various sectors: Telecom, IT, FMCG, auto, consumer durables, oil and gas, utilities, infrastructure, chemicals, metals and mining, logistics, pharma, retail, sugar, and cement, among others.   Total capex by the 150 companies went up from Rs 16 trillion in FY13-17  to  Rs 20.3 trillion in the past five years.  

The growing importance of this sector in capex was primarily because of the huge investments that three private telcos — Reliance Jio, Bharti Airtel and Vodafone Idea — made while rolling out 4G services since 2017-end across the country. Only in FY22, investments in the 4G cycle petered down substantially after these companies covered over 95 per cent of the country with 4G.

Reliance Jio accounted for the bulk of telecom capex under the period under review. It spent Rs 2 trillion to roll out a new network from the scratch, unlike other operators. And if the amount paid for spectrum is added, the amount will be even higher.

Analysts now expect the share of the telecom and digital sector to rise further over the next few years as telecom firms prepare for massive investments to roll out 5G services — which, according to some estimates, may cost Rs 2-2.25 trillion for merely putting the network in place. Airtel and Jio have set a target to cover at least 75 per cent of the country with 5G services by March 2024.

Telecom companies also bought 5G spectrum in a recently held auction for over Rs 1.5 trillion, which they have to pay via instalments over 20 years (part of the amount will be paid in the next five years). For instance, according to sources, Jio will be spending Rs 2 trillion on 5G (including spectrum payments), of which Rs 1.2 trillion will be for only rolling out the network.   

On the other hand, many sectors witnessed their share in overall capex decline in the past five years. The share of auto sector, which was already witnessing a demand slowdown ahead of the Covid pandemic, in overall capex declined from 10 per cent in FY13-17 to 7 per cent in FY18-22.