5G spectrum auctions: Overspending a key risk for telecoms

Cabinet has approved the much-anticipated auction of 72GHz of 5G spectrum across various frequency bands in India. The spectrum reserve price remains unchanged from the telecom regulator’s April 2022 recommendations.

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The Cabinet has approved the much-anticipated auction of 72GHz of 5G spectrum across various frequency bands in India. The spectrum reserve price remains unchanged from the telecom regulator’s April 2022 recommendations. The telecom companies (telcos) had stated that the reserve price of spectrum would be reduced by 90%; however, analysts note that the reserve price is only 35-40% lower than April 2018 levels.

Despite the fact that reserve prices are higher than requested, analysts at Kotak Institutional Equities believe that telecoms will participate in auctions and purchase a significant amount of spectrum to enable the rollout of 5G services in India. The deadline for submitting bids is July 8, and the auctions will begin on July 26.

5G spectrum auctions

However, as analysts at Motilal Oswal Financial Services Ltd point out. History shows that telecoms tend to invest heavily in telecom auctions in order to compete. “This could be a significant overhang on stocks. Given the lower initial investment. Vodafone Idea Ltd in particular could participate to some extent”. According to a Motilal Oswal report dated June 16th.

According to the report, Bharti Airtel’s and Reliance Jio’s strong free cash flow of over Rs20,000 crore and Rs25,000 crore, respectively, is sufficient to meet their investments in 5G spectrum without incurring additional debt. “However, the risk of higher 5G capex increases in the absence of a sharp drop in pricing.” “according to the report.

Furthermore, businesses that want to establish captive non-public networks can obtain spectrum directly from the Department of Telecommunications. According to the Kotak report, the provision for enterprises remains a concern because the 5G opportunity is focused on enterprise solutions rather than retail consumers. Investors should be aware that this provision has not yet been finalized. And will be a key metric to watch in the run-up to the auctions.

Since the cabinet passed the 5G spectrum auctions in India. Therefore, there is a key sign of development and better connectivity.