According to a report by Goldman Sachs, the Adani Group’s application to buy 5G spectrum from the upcoming auction might lead to a consumer mobility play down the line. Meanwhile, since there is a provision to get spectrum allocation for captive networks outside of the auction, Goldman Sachs believes it might make limited economic sense for enterprises to buy spectrum via the auction for their captive needs.
As per the report, if an enterprise were to buy spectrum via the auction to build private networks for other enterprises, the probability of such enterprises foraying into consumer network by making additional capex over time is quite high as the spectrum is usually a significant component of telcos’ overall capital expenditure (capex). Citing an example, the brokerage house mentions that since FY’11, Bharti Airtel has spent $18 billion in spectrum purchases in its India business (including mergers and acquisitions (M&A)), which is almost 50 per cent of the company’s total capex in its India wireless business.
Meanwhile, the report pointed out that while the Adani Group has not spoken about any M&A interests in telecom, it did recently foray into the cement space (where it did not have a presence) by buying out Holcim’s stake in ACC and Ambuja Cements in a $10.5 billion deal.
Talking about the sector outlook, Goldman Sachs notes that the entry of a new player could potentially disrupt pricing to try to gain market share. However, according to the analysts at Goldman Sachs, Airtel and Reliance Jio have strong networks and balance sheets to be able to defend market share, though average revenue per user (ARPU) and earnings could come under significant pressure for a period.
