5G spectrum price set by Indian telecom regulator TRAI will further push telecoms into more debt and non-viable business conditions.
India’s 5G spectrum pricing at $7 billion per 100 MHz, which is nearly four times of that in Korea, will be big drag on companies’ Internal Rate of Return (IRR), according to brokerage firm CLSA.
Airtel India CEO Gopal Vittal, Vodafone Idea CEO Balesh Sharma and COAI director general Rajan Mathews have already shared their concerns about the significantly higher 5G spectrum price in India.
The latest CLSA report said only significantly lower prices will justify above cost IRR and spectrum purchases.
Indian telecom regulator TRAI has recommended 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. However, at the recommended reserve price of Rs 490 crore per MHz, mobile operators will have to pay about $7 billion for 100MHz spectrum.
Incremental investment IRR will be 7 percent even with aggressive operating assumptions including Capex to sales ratio of 20 percent and incremental margin at 70 percent — at current 5G spectrum prices. The report said 33 percent lower cost in 5G spectrum with same assumptions can boost 5G IRR to 13 percent.
It will be negative for mobile operators to spend over $7 billion on a project offering limited returns since 4G penetration for Bharti Airtel and Vodafone Idea still stand at 25-30 percent of subscriber base, and an evolving 5G ecosystem.
The availability of 275 MHz spectrum in the 3.4-3.6 GHz band for three mobile operators will ensure that there is enough supply.
Even if Reliance Jio Infocomm bids for 5G spectrum in current auctions, incumbents led by Bharti Airtel can purchase spectrum in subsequent auctions. Deferring purchase will likely also lead to a cut in the price of spectrum, CLSA said.
Ravi Shankar Prasad, the new telecom minister, has indicated that India will start 5G trials by September and conduct the 5G spectrum auction by the end of 2019.