Shares of telecom companies traded with losses in afternoon trade on June 16 as the government said it is going to start the spectrum auction for 5G services soon.
As per a Mint report, Communications Minister Ashwini Vaishnaw said the spectrum auction for 5G services heralds the start of a new era for Indian communications. The Union Cabinet has approved the mechanisms for hosting a 5G spectrum auction, with 72 GHz of radio waves up for grabs by the end of July. Spectrum auction will commence on July 26, 2022.
The Cabinet allowed the creation and development of 'Private Captive Networks' to spur new-age industry applications such as machine-to-machine communications, the Internet of Things (IoT), and Artificial Intelligence (AI) in the automotive, healthcare, agriculture, energy, and other sectors, the report further added.
Shares of Vodafone Idea (VI) fell 3.51 percent while those of Reliance Industries, which owns Reliance Jio Infocomm, fell 1.43 percent. Shares of Bharti Airtel fell 4.11 percent.
The BSE Telecom index ended 3.04 percent down.
Analysts say the spectrum auction and the subsequent rollout of 5G services is a positive for the telecom sector.
Contrary to industry demand to lowering spectrum pricing, the Department of Telecommunications (DoT) has maintained the TRAI recommended spectrum price. Brokerage firms pointed out that TRAI had already cut pricing by nearly 40 percent across bands for the 20-year license period including the key 5G bands (3,300-3,670MHz and 700MHz) it still remains high.
Brokerage firm Kotak Securities, which has an 'attractive' view on the sector, sees two key issues for the telecom companies in DoT’s NIA (notice inviting application)—(1) reserve prices being well above that requested by telcos and (2) provision for enterprises to directly obtain spectrum to create CNPNs.
"Though reserve prices are higher than that requested, we expect telcos to still partake in auctions and take up a meaningful quantum of spectrum to enable the rollout of 5G services in India. The provision for enterprises remains a worry though given that the 5G opportunity is a play on enterprise solutions rather than retail consumers; the provisions are however not finalized yet given that DoT will have to carry out demand studies and seek recommendations from TRAI enabling enterprises to acquire spectrum directly. COAI has strongly opposed thedirect allocation of spectrum to enterprises,' said Kotak.
Brokerage firm Motilal Oswal Financial Services said Bharti Airtel and Reliance Jio’s strong FCF (free cash flow) of over ₹20,000 crore and ₹25,000 crore, respectively, and the former’s ₹21,000 crore expected cash (from uncalled right issue and Google equity infusion) is sufficient to meet its investments in 5G spectrum. But the risk of higher capex toward 5G does increase with the lack of a sharp fall in pricing.
Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.
