Whatever 5G plans Vodafone-Idea and Airtel may have had are done for good with the AGR drain, leaving Jio, fuelled by Mukesh Ambani’s endless pit of money, unchallenged and primed for future monopoly in the Indian Telecom Sector.
India’s Telecom Industry is officially set to become Mukesh Ambani’s private backyard. Supreme Court pulled up Vodafone Idea and Airtel and mandating them to pay up thousands of crores in unpaid Adjusted Gross Revenue (AGR). The development has hit their plans for 5G spectrum, leading Jio unchallenged in the spectrum auctions set to happen in April-June 2020.
Heads Up! Mukesh Ambani’s Jio may have already won India’s 5G race before it has even started
- SC pulling up Vodafone-Idea and Bharti Airtel eases the playing field for Jio
- The AGR dues issue changes the financial health and future competitive landscape of the sector
- 5G Spectrum Auctions in 2020 – What’s at stake?
- Jio may be the only suitor left with enough financial firepower for 5G
5G acquisition is crucial to the future of both players in the telecom sector. The much younger, 3-year-old Jio, has already overtaken Vodafone Idea and Airtel in terms of customers. The burden to clear the AGR dues on the two older private players threatens to be catastrophic for the sector.
Jio has already overtaken Vodafone Idea and Airtel in terms of customers and market share.
The SC ruling puts the survival of the two players in the Indian telecom sector on the line. While Airtel scampers to pay, asking for more time, Vodafone-Idea said that the ruling might result in it exiting India altogether. Analysts opine that India is on course for a future duopoly between Jio and Airtel. But it’s the former that is poised to dominate in the years to come.
SC Tightens Rope on Vodafone-Idea and Airtel, Eases Playing Field for Jio
Jio boss Mukesh Ambani’s stand on the AGR issue has been different from that of Vodafone-Idea and Airtel. The newcomer only had to pay a mere ₹195 crore in AGR dues, which it duly obliged. In comparison, Airtel’s dues stand at ₹35,000 crore and Vodafone-Idea has to pay up ₹53,000 crore.
The resounding hit that its rivals are set to take in the debt-heavy telco sector gives Mukesh Ambani’s Jio a significant advantage in future 5G investment plan – be it buying spectrum or building new infrastructure.
As per a Business Insider report, Jio wrote to the Union Telecom Minister Ravi Shankar Prasad urging the government to reject requests of Vodafone-Idea and Airtel for relief on the dues. It condemned Vodafone-Idea and Airtel asking for government support, accusing them of shedding “crocodile tears” with claims of financial stress.
Jio also criticized the two older players for their lack of intent to modernize the infrastructure. The RIL-owned Jio already has a more modern infrastructure in place compared to Vodafone-Idea and Airtel. That places it far ahead in readiness for 5G adoption.
How paying AGR dues changes the financial strength landscape for telcos
After the SC rap, the Department of Telecommunications issued its final notice to Vodafone-Idea and Bharti Airtel to immediately pay the dues. Bharti Airtel has deposited ₹10,000 crore already and asked time till 17th of March to complete the payment. On the other hand, Vodafone-Idea paid ₹1,000 crore. However, the court rejected its petition to deter the government from liquidating its bank guarantees.
The AGR exercise pegs Vodafone-Idea’s total debt at ₹1,20,000 crore whereas for Bharti Airtel the total debt stands at ₹1,08,000 crore. On the other hand, Jio has seen massive investment from Mukesh Ambani’s RIL over the three years including 5G readiness, accumulating a debt of ₹2,00,000 crore.
However, Ambani has already sold towers via an investment trust to Canada’s Brookfield Infrastructure Partners for ₹25,000 crore. Furthermore, the stake sale in the energy business to Saudi Aramco is in pipeline. When finalized, it will bring substantial buying power to Jio for future investments into spectrum.
Spectrum Auctions in 2020 – What’s At Stake?
The 2020 telecom spectrum auction by the Indian government puts 8,293.95 MHz of 4G and 5G spectrum at stake. If it is able to sell the entire spectrum; the government would rack up around ₹5,86,000 crore. However, let alone 5G, the telcos have immediate 4G spectrum requirements as their older acquisitions reach expiry date in 2021.
Both Vodafone-Idea and Bharti Airtel need to buy back their 4G Spectrum in eight circles. Jio also needs to buy 4G with its 800 Mhz airwaves acquired from the now-bankrupt RCom expires in July-August 2021. While the older players are pushing to get the auction postponed, Jio wants it to happen at the earliest.
The only suitor with enough financial power to acquire 5G spectrum in 2020
Consequently, leaving Jio aside, 5G plans will go out of the window for Bharti Airtel and Vodafone-Idea. The two do not have the health to shell out ₹10,000 crore for 20 MHz and ₹50,000 crore for 100 MHz. The prices are also a flashpoint where the telcos have decried as ridiculously overpriced. The government, on the other hand, cites the customer tariff increase and the deference in spectrum payments as enough bandwidth for companies, making the price reasonable.
Acquiring 5G spectrum will put both Vodafone-Idea and Airtel into a deeper debt-crisis.
However, acquiring 5G will put both Vodafone-Idea and Airtel into deeper holes and a debt-crisis. In comparison, the already 5G ready Jio has a significant advantage financially. It is the only likely candidate to come out with a 5G spectrum acquisition in 2020.