5G Auction: Not so financially taxing…

The Department of Telecom (DoT) has announced that the 5G airwave auction will start on July 26, 2022. The reserve price for 5G airwaves has remained the same by the Cabinet.

The 20-year spectrum period has remained constant. Payments will now be made in 20 equal annual installments rather than the mandatory upfront payments of 25 to 50 percent that were previously required for certain spectrums. This change will take effect at the beginning of each year.

In terms of private networks, telecoms are now able to offer captive non-public networks (CNPNs) to businesses utilizing their network resources, while businesses also have the option of obtaining spectrum directly from the DoT. As a result, there is still conflict between telecoms and tech firms because it would reduce their chance in the enterprise market.

The Department of Telecommunications (DoT) reduced the 3 percent floor rate on spectrum usage charges (SUC), which is a relief for telecom operators. As telecoms add a new spectrum, which increasingly has zero SUC, these payments will eventually be zero on their whole spectrum holding. The three commercial operators currently pay SUC on AGR between 3.6 and 4.1 percent. If the core 3300 MHz spectrum is given 100 MHz and the 2600 MHz pan-India bid is given 500 MHz, the weighted average SUC on AGR will drop dramatically to 1-1.2 percent. The top two telecoms stand to save between 2100 and 2300 crore annually. Or, to put it another way, it will reduce the financial burden by 63-68 percent by subsidizing the 5G spectrum annual payouts (of Rs. 3374 crores, for 20 years equal payout).

Since it has routinely posted solid figures, particularly on the Indian cellular business front, along with excellent customer stickiness, Airtel is still in a good situation. The non-wireless sector's momentum and Africa's performance are both still strong. Additionally, Airtel can use residual rights money (Rs.15,740 crore) and perhaps some external borrowing expected to be lower than the installment coupon rate of 7.2 percent to pay for the 5G auction in addition to SUC benefits that would arise. As a result, the impact of leverage from this auction will be minimal. An advantageous industry structure with three companies (two of which are strong), government relief, a tariff increase, and a fundraiser place Airtel in a prime position to sustain its competitive edge with a powerful digital ecosystem offering.

Top Stocks in Telecom Industry:

1. Bharti Airtel:

As of FY22, Bharti Airtel (Airtel), the second-largest telecom provider in India, had 12.8 crore users throughout 14 African nations in addition to 32.6 crore wireless consumers in India. In the wireless sector, it has the highest ARPU.

The company has reiterated its target ARPUs of Rs. 300 over the medium- to long-term and Rs. 200 in the near term. The company anticipates a single round of pre-paid customer rate increases in FY23 (upgrading consumers from prepaid to postpaid will not be sufficient to attain an ARPU of Rs. 200).

Airtel also reaffirmed a significant opportunity in the enterprise sector (total market size of about Rs. 35,000 crores) and adjacent industries like CPaaS, Cloud communication, cyber security, and IOT with comparable market sizes.