Reliance Jio ups the ante as Adanis keep off big 5G spectrum game

With the Adanis submitting an earnest money deposit (EMD) of just Rs 100 crore on Monday for the upcoming 5G spectrum auction, the apprehension among the rivals that the group is nursing ambitions of being an all-India mobile player has been allayed at least for now.

Based on its EMD, analysts say it can buy spectrum worth just Rs 900 crore, whose use will be limited to enterprises and captive networks -- that too is likely only in a few circles where it has its infrastructure like ports, airports, and power stations.

While getting all-India millimetre band spectrum of 400 MHz (which costs Rs 2,800 crore) is ruled out, it might choose circles like Gujarat and Mumbai to start with.

The Department of Telecommunications on Monday announced four pre-bidders, which together deposited Rs 21,800 crore as EMD with Reliance Jio putting in Rs 14,000 crore, Bharti Rs 5,500 crore, and Vodafone Rs 2,200 crore, apart from the Adanis.

As part of the auction, the DoT earmarks an EMD for each block of spectrum, which differs from circle to circle and spectrum band to band.

Telcos, based on their plan for acquiring spectrum across segments, have to submit an EMD, which indicates how much the operators are willing to spend during the auction.

The formula analysts use is that what telcos plan to spend on the auction is eight to 10 times the EMD.

As part of the rule, telcos cannot bid more than this war chest and it is prudent to keep a cushion in the case of competition.

But there are telcos that go for a higher EMD to confuse their competitors because under the rules they do not have to spend the entire money.

For instance, analysts say Reliance Jio’s EMD is primarily meant to mask its real strategy.

Experts say even in the previous auction Bharti and Reliance Jio had put in a higher EMD.

However, it is clear Jio has taken an aggressive stance: It can either buy 100 MHz in the 3.5 GHz band or hit the cap of 130 MHz (40 per cent of the spectrum on offer), for which it has to pay Rs 49,000 crore at the base price, and go for anything between 800 and 1,000 MHz in the millimetre band (which will cost Rs 5,600-7,000 crore).

In the millimetre band, it might keep one band (400 MHz) for B2C services and the other band for B2B services.

Analysts say with a war chest of Rs 1.12-1.40 trillion, based on its EMD, Reliance has enough cash to complete two blocks in the 800 MHz band all-India with additional purchases in UP West, Assam, the Northeast, J&K, etc.

Airtel, on the other hand, has been a moderate player. With an EMD of Rs 5,500 crore, it can buy all-India 100 MHz in the 3.5 MHz band, which is more or less like Reliance’s.

But in the millimetre band it might go for much less, looking at something like 400-800 MHz.

Vodafone Idea, whose war chest based on its EMD is Rs 17,700-20,000 crore, will focus on 16-17 circles it is concentrating on to buy both in the 3.5 GHz and millimetre bands rather than go all-India.

The strategy is to provide customers 5G services in these key markets rather than go all-India.

Analysts say they have enough cash to get going with 50-60 MHz of 5G spectrum in the 3.5 GHz band and with the support of 400-500 MHz in the millimetre band.

Such a move will also give them significant savings in spectrum user charges (SUC) because in these bands the outgo is zero.