Jio, Airtel set to make market share gains from spectrum acquisitions: Analysts

New Delhi: The strengthening of spectrum footprints by Bharti Airtel and Reliance Jio in the just-concluded auctions is expected to yield market share gains for the two telcos, arming them with sustainable advantage in the long run and for 5G play, according to analysts.

With the auctions over, the key things to be monitored would be Vodafone Idea Ltd's (VIL) balance sheet and its potential capital raise, signals of price hike, launch of a Jio-Google smart phone, and 5G spectrum auctions, they noted.

Analysts across-the-board concurred with the government's view that at Rs 77,814 crore of total bids, the spectrum auction outcome and response had surpassed expectations.

Goldman Sachs noted that Bharti and Jio had "significantly" bolstered their spectrum footprints, and that strengthening of radiowave holdings "could aid their market shares while at the same time keeping capex under check".

In all service areas and bands, spectrum was sold at reserve prices, indicating that this higher-than-expected participation was a function of telcos looking to secure their medium-term spectrum needs rather than a result of a bidding war, it said.

With the spectrum auctions done, Goldman Sachs said it believes that investor focus will now shift to VIL's balance sheet and its potential capital raise, signals of tariff hike, launch of a Jio-Google smartphone, and 5G spectrum auction.

The more-than-expected participation from telcos in the auctions increases the probability of a price hike as a way to offset increase in leverage, market watchers said.

"While the March '21 auction was largely a non-event for Vodafone Idea, the company's limited ability to participate in future 5G spectrum auctions (due to its stretched balance sheet) could result in further erosion of its market share," Goldman Sachs said.

Moody's Investors Service said spectrum renewals will help incumbents protect their market positions while additional bandwidth purchases will drive improved network coverage.

"Indian telcos' spectrum acquisition can be accommodated in their current ratings, particularly amid the stabilising competitive environment. Some have recently raised funds while others have large cash holdings to support the acquisitions," Sweta Patodia, Analyst, Corporate Finance Group at Moody's Investors Service said.

BofA Securities highlighted that a key question is whether Jio would undertake tariff hikes to help offset the higher bids and investment.

"The initiative for tariff hike should largely come from VIL as it is the most in need of it; RIL (Reliance Industries Ltd) management is unlikely to take a knee-jerk reaction of raising tariffs just because it spent more in auctions; while in medium-term RIL is keen to raise tariffs, we believe in the near term, RIL focus could be gaining subscribers (especially on 2G)...," BofA Securities said in a note.

In fact, both Jio and Bharti, are expected to focus on improving their market share in the near term given their stronger balance sheets as compared to VIL, it concluded.

Observing that Bharti and Reliance had taken initial steps to fortify their 5G radiowaves, it reiterated that the two will have "sustainable advantage in the long run, with them fortifying their 5G spectrum".

"Post this auction, we see risks of VIL having disadvantage in 5G given its weaker balance sheet," it said.

Post auctions, there is likely to be a crash in spectrum prices, "a positive for 5G auctions", CLSA said.

This is because, with 63 per cent of the spectrum in this auctions unsold, cuts in reserve prices are likely.

"Historically, the government has cut spectrum prices by 30-40 per cent if it saw no demand in the previous auction and this will be a significant positive especially for 5G," it said.

Also, in the future 5G auctions with the 275 MHz spectrum available in 3.3-3.6GHz bands alone (besides other bands) and only three operators, there will be good supply, it pointed out.

"Auction spending has caused RJio spectrum debt burden to jump 144 per cent to Rs 631 billion/ USD 8.6 billion and it is now 10 per cent higher than Bharti Airtel's Rs 576 billion/ USD 7.9 billion," it said.

Still, VIL's spectrum burden is the highest among the three operators at Rs 95,400 crore.

VIL's muted participation in these auctions was on expected lines and needs to be seen in the context of its cash flow constraints and customer market share already lost, Credit Suisse said in a note.

While Jio is likely to focus on reviving subscriber growth in the near term, over the medium term it will have to take price hikes to support network investments and upcoming 5G roll out, Credit Suisse said.

India's first auction of telecom spectrum in five years ended on Tuesday with Rs 77,814.80 crore of airwaves being acquired by telcos, mostly by billionaire Mukesh Ambani's Reliance Jio which picked up spectrum for Rs 57,122.65 crore. Jio acquired 488.35 MHz spectrum in bands such as 800 MHz, 1800 MHz and 2300 MHz.

Bharti Airtel bid about Rs 18,699 crore to pick up 355.45 Megahertz (MHz) out of the total 855.60 MHz of radio frequency acquired by all telcos while VIL, which is facing a huge liability of unpaid statutory dues of the past, bought 11.80 MHz of spectrum worth Rs 1,993.40 crore.