Adani 5G auction keeps door open for telecom entry

Adani said plans to acquire 5G spectrum for developing a private network for airports and its ports business (Mint)
Adani said plans to acquire 5G spectrum for developing a private network for airports and its ports business (Mint)


The department of telecommunications has allowed private captive networks for enterprises across sectors

NEW DELHI : Adani Group’s decision to participate in the upcoming auctions to acquire 5G airwaves could well be part of a long-term strategy to enter the telecom sector in a full-fledged manner, including consumer services, analysts said.

The group recently confirmed its participation in the upcoming 5G auction but has denied plans to enter consumer services, insisting that it plans to acquire 5G spectrum for developing a private network for airports and its ports business. Still, market participants believe that consumer services may be on the cards, too, since the spectrum made available by the government in the auctions slated for 26 July does not restrict any entity from offering consumer services at any point during the term of the licence, which leaves the option open for the conglomerate.

Divergent track
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Divergent track

On Monday, shares of Bharti Airtel plunged by more than 5%, which analysts attributed to Adani Group’s participation in the 5G auction. The group’s entry into consumer telecom services could trigger another wave of disruption and price war, similar to Reliance Jio’s launch in 2016, analysts said.

“If the Adani Group does end up buying spectrum, it could potentially increase competition in enterprise 5G, in addition to opening the doors for the Adani Group to expand into consumer mobile services over time," analysts at Goldman Sachs said in a note to clients. They noted that an enterprise buying spectrum via auctions to build private networks for other enterprises had a high probability of foraying into consumer networks by making additional capex over time.

“This is because spectrum is usually a significant component of telcos’ overall capex: for example, since FY11, Bharti has spent about $18 billion in spectrum purchases in its India business (including M&A), which is almost 50% of the company’s total capex in its India wireless business (spectrum + non-spectrum capex)," they said in the note.

Motilal Oswal Securities Ltd said an expanded telecom foray was possible over time. “There is certainly a consumer bent within the group, which could extend beyond its existing FMCG-led offerings," the brokerage house said in a note.

“Conglomerates that choose the auction route might possibly have plans for both private and public networks," said T.V. Ramachandran, president of the Broadband India Forum.

But some analysts questioned the group’s decision to buy spectrum in auctions for standalone 5G enterprise network solutions since globally, use-cases were still in pilot stages. “Why bid for 5G spectrum in auctions when the government has already allowed private enterprises to set up captive non-public networks by acquiring spectrum from the government for a nominal cost and without any licence fees (spectrum usage charges have been set at nil)," analysts at Swiss brokerage firm Credit Suisse questioned.

“The question is why would Adani’s bid in auction vs awaiting a direct spectrum assignment?" analysts at CLSA asked.

The department of telecom has allowed private captive networks for enterprises across sectors, permitting companies with a net worth of over 100 crore to take spectrum for 10 years at 50,000 and no entry fee, but it has given no timeline for conducting demand studies and then seeking recommendations from the sector on direct spectrum to enterprises.

There is ‘limited economic sense’ for enterprises to buy airwaves via auction for their captive needs, primarily since there is a provision for getting spectrum outside of auction, analysts at Goldman Sachs highlighted.

“While Adani Group has expressly denied intentions of entering the consumer mobility business, we believe market participants may still view this as a low, distant possibility, given the sector’s history," analysts at Credit Suisse highlighted.

Analysts at Jefferies noted an uncanny similarity between the group’s telecom foray and that of Reliance Jio, which held spectrum on which voice services could not be launched till the time the government changed the rules. Jio took unified access service licence (UASL) spectrum and launched its voice services three years later, in 2016. “Given that Adani Group has chosen to buy spectrum, it may still be able to offer commercial services by applying for a UASL in future," they said in a note to clients.

Queries emailed to Adani Group on its strategy and why it had chosen not to wait for captive non-public network guidelines and direct spectrum allocation did not elicit a response till press time. The group had on Saturday said it does not intend to be in the consumer mobility space. In a statement, it clarified that it would provide captive private network solutions to its other businesses like airports, ports and logistics, power generation, transmission, distribution and various manufacturing operations. Analysts said a pan-India spectrum purchase isn’t required for this kind of service.

The company further said it needs ultra-high-quality data streaming capabilities through a high frequency and low latency 5G network. This, analysts said, was indicative of consumer-centric offerings like its own digital platform, including super apps, edge data centres, and industrial command and control centres.

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