Surprisingly large mid-band spectrum purchase to boost Vi's 4G: Analysts

Latest spectrum won't change sector dynamics, eyes on tariff action, they say

Vodafone Idea's (Vi) surprising purchase of spectrum for the renewal and new 4G airwaves across the 1,800 MHz and 2,500 Mhz bands in the latest auctions is set to boost the telco's network experience across 9 circles, analysts said on Thursday.

With bids worth Rs 6,856 crore, Bharti Airtel was the biggest buyer of airwaves, purchasing 97 MHz spectrum.

Telecom market leader Reliance Jio bought the lowest amount of spectrum -- 14.4 MHz -- at Rs 973 crore.

Vodafone Idea (Vi) picked up the second largest quantum of spectrum, or 30 MHz at Rs 3,510.4 crore.

"While it faced 900 MHz renewal in two circles, Vi picked up spectrum in this band in seven more circles. In many of these bands, Vi picked up fractional amounts of spectrum like 1.2 MHz or 2.4 MHz. This spectrum could be used to park 2G traffic, and enable the telco to push for more 4G subscribers," IIFL Securities said in an analyst report.

Vi’s overall outlay of Rs 3,500 crore (Rs 350 crore in annual installments) was higher than the base-case expectation of Rs 1,200-1,500 crore spent by analysts. Vi also acquired spectrum in mid-band in MP and Bihar circles to improve network capacity, which will boost network experience, Kotak Institutional Securities said.

It added that Airtel now possesses at least 10 MHz sub-GHz spectrum in 10 circles, putting up more of a fight against Jio. "There was a case for Bharti to top up sub-GHz spectrum in a few more circles, but the focus seemed to be on boosting mid-band (1800, 2100 MHz) holdings instead," Kotak said.

The 1,800 MHz band saw among the highest demand from all telcos, and it was the only band where Jio acquired spectrum.

According to an analyst report by Morgan Stanley released on Wednesday, Vi and Airtel controlled 31 per cent and 29 per cent of the 1,800 MHz spectrum market share respectively, before the auction.

The band saw competition among telcos above the government's reserve price in West Bengal and Bihar circles, officials said.

With the latest spectrum auction wins, there will likely not be any significant change in competitive dynamics between the three operators, analysts said.

Jio and Bharti already control a combined 78 per cent of the sector’s revenue. 

"Jio and Airtel already control a combined 78 per cent of the sector revenue, which we forecast will reach 83 per cent by FY26. We keep our FY24-27 share forecasts unchanged and will factor in auction spend/payments following the spectrum allocations," capital markets and investment group CLSA said in a note.

Going forward, the ability to take tariff actions by telcos should resume, JP Morgan said. "We believe this is likely to have contributed to the sharp stock reactions yesterday," it said.

Alongside the annual payments, winning operators will have the benefit of nil annual usage charges, (versus 3-5 per cent previously) for the spectrum acquired in this auction besides the 5G spectrum wins of 2022.

"If all telcos opt for the most relaxed payment option (20 equal annual installments), the annual payout works to 10 per cent of total bid value for the Net Present Value preservation at 8.65 per cent interest rate. This translates into Rs 100 crore, Rs 700, Rs 350 crore for Jio, Airtel, and Vodafone respectively, quite manageable" IIFL Securities said.