Analysts believe that the Adani Group’s request to purchase a 5G spectrum at the forthcoming auction may eventually result in a consumer mobility play. Reliance Jio and Bharti Airtel have robust networks and financial standing to safeguard their market shares, they continued, but cash-strapped Vodafone Idea will be exposed if that were to happen in the future.
“Since there is a provision to get spectrum allocation for captive networks outside of the auction, we believe it might make limited economic sense for enterprises to buy spectrum via the auction for their captive needs,” Goldman Sachs said in a report.
“…if an enterprise were to buy spectrum via the auction to build private networks for other enterprises, we believe the probability of such enterprises foraying into consumer network by making additional Capex over time is quite high,” the brokerage house added.
Goldman Sachs stated in research that it “may make limited economic sense for corporations to buy spectrum via the auction for their captive purposes” because there is a method to obtain spectrum allocation for captive networks outside of the auction.
This is because the spectrum is typically a sizable part of telcos’ entire CAPEX. For instance, Goldman Sachs said that Bharti has spent $18 billion (including M&A) on spectrum purchases in its India business since FY11, which accounts for about half of the company’s overall CAPEX in its India wireless business.
The Adani Group announced on Saturday that it had no plans to enter the consumer mobile market but would take part in the future 5G spectrum sale to offer private network solutions and improved cyber security at ports, airports, manufacturing, distribution, and power production operations. The company also stated that its recent announcement to increase the Adani Foundation’s investments in rural education, healthcare, and skill development is consistent with its ambitions to bid for the spectrum.
“While the Adani group has expressly denied intentions of entering the consumer mobility business, we believe that market participants may still view this as a low, distant possibility given the sector’s history,” said Credit Suisse, in a report analyzing the development.
The Adani Group and the other three applicants—Bharti Airtel, Reliance Jio, and Vodafone Idea—are among the four to participate in the spectrum auctions that will begin on July 26.
Bharti Airtel shares plummeted more than 5% to Rs660.05 on the BSE in late trade on Monday as a result of the announcement. In anticipation that the Adani group would eventually acquire the struggling operator, Vodafone Idea increased by 3% to Rs8.68, according to market analysts.
“The Government of India will own a 33% stake in Vodafone Idea post the conversion of the company’s interest dues into equity and the government has indicated it will look to sell such stake at an appropriate time to realize the due amounts,” Goldman Sachs observed.
Goldman Sachs said that while the Adani Group has not mentioned any M&A intentions in the telecom sector, it recently entered the cement industry by purchasing Holcim’s holding in ACC and Ambuja Cements in a $10.5 billion deal, entering a market where it had no prior presence.
“We see Sell-rated Vodafone Idea, with 31x net-debt-to-EBITDA and 20% revenue market share (both March, FY22) as the most vulnerable to market share loss,” Goldman Sachs said.
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