New Delhi, Aug 6 : With Jio likely to roll out its own 5G, Bharti Airtel would be under pressure to launch the same network in the near future, a foreign brokerage BofA Securities said in a report. “In our opinion this raises the possibility of Bharti buying 700 MHz in the next auction (pricing likely to be similar to the current auction).
Capex investment, however, should be greater – first, launch NSA followed by standalone 5G” the report stated.
“We therefore view 5G-related investments as being likely to be high for several of years.
We think that 5G is likely to be a duopoly of Jio and Bharti in the space of consumer and anticipate both Bharti and Jio to emerge as the dominant players in the consumer market with 5G bundles,” BofA Securities added.
“The major impacts for Bharti Airtel from the 5G auction are margin accretion due to lower SUC charge and higher net debt due to a higher spectrum liabilities than we anticipated and a potential surplus of peers winning spectrum” the foreign-owned brokerage Morgan Stanley stated in an article.
Bharti Airtel has bid and won spectrum in the 1800MHz, 900MHz 3300MHz, 26GHz and 900MHz bands for Rs 432 billion ($5.5 billion).
“For Bharti Airtel, the increase in spectrum liability compared to our initial estimate will increase our projection of net debt by $2.5 billion.However, a lower SUC cost could improve Indian mobility company EBITDA margin by about 350bps (~$330 million in absolute terms) that is a 7 to 7% EBITDA increase to the business (70 percent of SOTP),” Morgan Stanley stated.
If you look at it on a net basis this could result in an increase of up to 2 percent to the intrinsic value.
On the other hand there is the possibility of front loading of capex in the initial years, which could lead to a greater cash outflow than originally anticipated.Furthermore, with the peer winning more spectrum, particularly in 700Mhz, this could cause skepticism if the business decides to eventually build an array of 700Mhz in the near future, which would suggest greater debt, the report said.
ICICI Securities said in a report that Bharti is under control in capital allocation.Bharti has maintained its discipline in the allocation of spectrum capital with the purchase of 100MHz in India in C-band, and 800MHz in 26GHz.
It also purchased spectrum in the 900/1,800/2,100MHz band to increase capacity of 4G, or bought spectrum in advance for the upcoming expiry.The total amount paid to Bharti will be around Rs 431 billion, and the initial payment is of 22 billion.
The the annual instalment following SUC savings (of 22 billion) will be around 18 billion that ICICI Securities believes will not burden the balance sheet too much.
Net debt for the company will rise to $1,550 billion following the purchase of the spectrum, which will be reduced by around 150 billion waiting for a fund infusion from the rights issue and by Rs 50 billion from preferential issue to Google.The net debt is 1,350 billion.
But the main thing to be watching is Bharti’s time to buy 700MHz band spectrum at present prices will cost about Rs 200 billion for 5MHz across India and possibly the 5G capex will be accelerated (which could pose a risk of negative impact for our FCF estimates).
“We believe that Bharti will stay with the NSA-5G in the initial launch,” ICICI Securities said.
Bharti is planning to roll out 5G-based services in every region of the country, beginning with the most important cities.
It is confident that its more loyal customers will be able to adopt 5G devices at a an accelerated pace in the entire country.
Bharti isn’t showing aggressiveness in 5G technology however, will competition force the company to alter its position, ICICI Securities asked.
The company’s current spectrum pool of spectrum is already among the most efficient in the field and therefore is not required to spend any significant amount on spectrum for a long time to in the years to.
Bharti has said that a major investments in spectrum is in the works the 700 MHz purchase, however, it could require a review the report stated.
Bharti has announced it has signed agreements for 5G networks with Ericsson, Nokia and Samsung to begin 5G deployment in August 2022.
It has enjoyed an ongoing relationship for connectivity and managed services for pan-India with Ericsson as well as Nokia while the collaboration with Samsung will start in the coming year.
The 5G partnerships come on the following of auctions of spectrum conducted by the Department of Telecom in, which Bharti was a bidder and purchased 19867.8 MHZ spectrum in the 900 MHz, 1800 2100 MHz, 3300 MHz and 26 GHz frequency.
The agreement was discussed in detail.Gopal Vittal, MD and CEO of Bharti Airtel said, “We are thrilled to announce that Airtel will begin rolling out of 5G-related services in August.
Our network agreements have been finalized and Airtel will collaborate with the top technology partners across the globe to provide all of the advantages of 5G technology to our customers.The transformation of India into an economy that is digital will be facilitated by telecoms, and 5G provides an exciting opportunity to accelerate the digital transformation of businesses, industries and the socio-economic growth of India.”
The selection of different partners will allow Bharti Airtel to roll out 5G services that include ultra-high-speeds as well as low latency and massive capacities for handling data, which will enhance the user experience as well as the development of innovative applications with industrial and enterprise customers, according to the company.
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