According to Indian Ratings and Research (Ind-Ra), the recently concluded 5G spectrum auctions that offers a flexibility to telecom carriers to pay in 20 equal annual installments, is credit neutral for Reliance Jio and Bharti Airtel. The agency believes that Jio and Airtel have the strong financial flexibility and adequate cash flow buffer to cover the annual spectrum liabilities and annual gross revenue dues.
Jio and Airtel are required to pay an instalment of Rs 78.77 billion and Rs 38.53 billion, respectively, for the total spectrum cost of Rs 880.78 billion and Rs 430.84 billion in 5G auction for 20 years. Moreover, the Department of Telecommunication (DoT) has abolished the spectrum usage charges for the spectrum acquired in the auction, which, according to Ind-Ra, could reduce the annual gross revenue (AGR) dues and thereby improve the operating margin of the telcos.
Besides, Ind-Ra is of the opinion that the 5G specific capital expenditure (capex) would not be as aggressive and upfront as 4G, given the low penetration of 5G enabled devices and ecosystem in India. With regard to the spectrum bands acquired by Jio, Ind-Ra asserts that the acquisition of 700MHz spectrum in all the 22 circles would provide a solid foundation to Jio for enhancing its 5G coverage and indoor network quality, even with lesser tower densification.