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No usage charges to make spectrum payout cheaper; Airtel, Vi, Jio likely to save 5,400 cr

RJio will be the biggest beneficiary with annual savings to the tune of  ₹2,300 crore, while Airtel and Vodafone Idea will save up to  ₹2,100 crore and  ₹1,000 crore respectively. (Reuters)Premium
RJio will be the biggest beneficiary with annual savings to the tune of 2,300 crore, while Airtel and Vodafone Idea will save up to 2,100 crore and 1,000 crore respectively. (Reuters)

  • The government will be auctioning about 4.3 lakh crore worth of airwaves on July 26, 2022, that will be capable of offering 5G telecom services, including ultra-high-speed internet.

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Telecom giants Bharti Airtel, Vodafone Idea, and Reliance Jio will benefit heftily from the Centre's no-spectrum usage charges on the upcoming 5G auction. As per ICICI Securities, the three companies can cumulatively save around 5,400 crore from the new SUC rule, and their cash outflow will also reduce. With that, spectrum payouts will become cheaper.

On Tuesday, the Department of Telecommunications in major good news for telecom firms, announced for spectrum through an auction held after September 16, 2021, in different access spectrum bands, no 'Spectrum Usage Charges' will be charged.

The government will be auctioning about 4.3 lakh crore worth of airwaves on July 26, 2022, that will be capable of offering 5G telecom services, including ultra-high-speed internet. As much as 72 GHz of the spectrum will be put on the block during the 5G auction. Also, the government okayed for setting up of 5G networks by the tech firms.

Sanjesh Jain, Research Analyst at ICICI Securities said, "modification in SUC, issued by the DoT, will significantly reduce spectrum pay-out burden for operators from the upcoming 5G spectrum auction, and also restrict RoIC compression."

Data of ICICI Securities showed that in the fourth quarter of FY22 (Q4FY22), Airtel had the highest SUC as a percentage of AGR including NLD at 4.1%, meanwhile for peers Vodafone Idea and Reliance Jio the charges were at 3.8% and 3.6% respectively as a percentage of AGR.

However, the data also said that this includes SUC on the microwave spectrum which is not part of the above modification.

Thereby, SUC on the access spectrum for Airtel, Vodafone Idea, and RJio works out to 3.2%, 2.9%, and 3.1%, respectively, after adjusting for SUC on the microwave spectrum.

"We have deducted 0.9% for Bharti / VIL and 0.5% for RJio from circle-wise SUC rate with a floor at 3% of AGR to reach SUC rate for access spectrum," the analyst said.

After applying the new SUC rule on Q4FY22 (annualised) AGR, as per the analyst, it shows savings of 1,000 crore to 2,300 crore for the three telecom giants.

RJio will be the biggest beneficiary with annual savings to the tune of 2,300 crore, while Airtel and Vodafone Idea will save up to 2,100 crore and 1,000 crore respectively.

According to the analyst, the key assumptions are - 1) each operator will buy 100MHz pan-India in 3300MHz band, and 500MHz pan-India in 26GHz band in the upcoming auction, and 2) assumption of SUC on microwave spectrum.

Jain said, "Above quantity of spectrum acquired in the upcoming auction attracts nil SUC which will drop weighted average SUC rate to 0.4%/ 0.3%/0.4% for Bharti/VIL/RJio for access spectrum. Including SUC on the microwave spectrum, the new SUC rate works out to 1.3% / 1.2% / 0.9% of AGR for Bharti/ VIL/RJio, respectively. This implies annual savings of Rs21bn for Bharti; Rs10bn for VIL and Rs23bn for RJio on Q4FY22 annualised AGR."

Also, the spectrum EMI payout from the upcoming auction is expected to decline in the range of 1,100 crore to 2,400 crore for the three telcos.

The spectrum EMI payout will dip to 1,200 crore for Airtel, 2,400 crore for Vodafone Idea, and 1,100 crore for RJio.

"If we continue with the above assumption of spectrum acquisition (100MHz pan-India in 3300MHz band, and 500MHz pan-India in 26GHz band) in the upcoming auction, total spectrum payout at reserve price is Rs352bn. If operator chose 20 years’ annual installment with a coupon rate of 7.2% (as notified in NIA) then annual installment works out to Rs33.7bn," Jain said.

Further, the analyst added, "If we apply corresponding savings from SUC, the annual payout for spectrum acquired in the upcoming auction reduces to Rs12bn for Bharti, Rs24bn for VIL, and Rs11bn for RJio. Unlike previous auctions, we don’t expect much pressure on FCF and RoIC from 5G spectrum auction due to modification in SUC."

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