5G splurge to lay debt trap for telcos?
The highly anticipated 5G spectrum auction was finally concluded this week. India’s leading telecom companies bid for 51 GHz of 5G airwaves and spent ₹1.5 lakh crore, higher than the government’s estimate of ₹1.1 lakh crore.
There is excitement within the telecom industry and among consumers around the launch of 5G services. However, market experts believe that the higher-than-expected spectrum spends could push the telecom industry’s overall debt to more than ₹6 lakh crore, from ₹4.7 lakh crore at present.
Moreover, setting up 5G network infrastructure like laying of fibre-optic cable could put additional burden on telecom operators.
In the past, telcos with unsustainable debt levels like Aircel and Anil Ambani owned-Reliance Communications were forced to go out of business. Further, competition within the telecom industry has substantially increased after the entry of Reliance Jio.
The net debt of Bharti Airtel and Vodafone Idea stood at ₹1.96 lakh crore and ₹1.6 lakh crore, respectively, in the quarter ended March 2022. Meanwhile, Reliance Jio’s net debt was at ₹57,700 in the June quarter FY23. Market experts believe that the strong balance sheets of Reliance Jio and Airtel could act as a shield against high debt.
However, Vodafone Idea’s elevated auction spending could raise its leverage beyond the comfort zone. This could hinder its ability to compete against rivals on the 5G turf.
Nevertheless, telcos are all set to roll out 5G services, with some expected to launch them in the last quarter of 2022. Consumers having 5G-enabled devices will be the first to experience the 5G speeds. However, wide-scale adoption will depend on 5G handset penetration, which stands at just 15% at present.