India’s much-anticipated 5G spectrum auction likely to see subdued response

India is likely to witness subdued bidding for the much anticipated 5G spectrum auctions announced recently by the government. 
A key reason for the expected low-key response to the auction is the high reserve price of the spectrum. Further, the availability of enough spectrum for all service providers and the lack of consumer use cases are likely to result in a muted response.

Earlier this month, the Indian government announced that it would be holding a sale of around 72Gb of spectrum in the low band, mid-band and high-frequency bands in the coming month. The spectrum will be available for a period of 20 years. 

Money talk 

While the government has brought down the spectrum price by as much as 40%, it is still considered to be high by the telcos. Because of the high base price, the spectrum in the 700 MHz remained unsold in the last two auctions. 
A recent report from the Indian credit-rating agency ICRA says that the telecom industry is likely to spend INR1000 billion ($12.82 billion) to INR1100 billion ($14.10 billion) on purchasing 5G airwaves from the government. This would result in increasing the sector's debt. The Indian telecom industry is already under financial stress because of high debt. Vodafone Idea, India's third-largest service provider, is already looking for investment because of its high debt.

At the same time, the government has eased the payment terms. The auction winners will be required to make the payment in 20 equal annual installments at the beginning of each year.
"This is expected to significantly ease cash flow requirements and lower the cost of doing business in this sector. The bidders would be given an option to surrender the spectrum after 10 years with no future liabilities with respect to balance installments," says the press note issued by the government.
ICRA also says that the Average Revenue Per User (ARPU) is expected to increase to INR170 ($2.18) by the end of the current financial year because of the anticipated rate hike and subscribers' expected upgrades to 5G. As per the latest results, Bharti Airtel has an ARPU of INR178 ($2.29) per user per month in March 2022, while Reliance Jio and Vodafone Idea reported ARPU of INR167.6 ($2.16) and INR124 ($1.59), respectively.
The top two telcos, Reliance Jio and Bharti Airtel, will be the active participants in the spectrum auction. However, Vodafone Idea is likely to selectively bid for the spectrum since it is under massive debt. 
Looking for 5G use cases

The Indian service providers have also highlighted the lack of 5G use cases on the consumer side, which can jeopardize the return on investment. Further, they were unable to get their way in the 5G private networks as well.

The government's stand on the spectrum for the captive wireless networks is also creating problems for the telcos. The service providers were lobbying that all the spectrum should be auctioned and not given administratively to enterprises, which would have meant that the enterprises would need to use telcos' services to set up private wireless networks. The technology companies aggressively countered this viewpoint. Several Indian companies, including Tech Mahindra, Wipro and Tata Communications want a share of the private networks' market.
However, the government has opened all options, which means that enterprises can acquire spectrum from the government as well as from the telcos for 5G private wireless networks.

"This will diminish the revenue so much that there will be no viable business case left for the TSPs [Telecom Service Providers] and there will not remain any need for 5G networks rollout by TSPs," says the recent letter written by the Cellular Operators Association of India (COAI) to the Telecom Minister. 

Even with the muted response, the high reserve price ensures that the government will be able to get returns.