Will Adani's Entry In 5G Spectrum Race Shake Up India’s Telecom Equation?

In 2016, India’s telecom sector witnessed a ruthless coup. Unleashing Jio on the fragmented sector with no dominant leader, Reliance Industries chairman Mukesh Ambani, almost cinematically, announced his arrival in the space.

With that, disruption became the buzzword as Jio, armed with a predatory pricing strategy, brought about a data revolution in the country by offering 4G internet at dirt-cheap rates along with free voice calls. Today, at 35.49 per cent, the telecom giant has managed to trump the rest in terms of market share with its strategic strides.

To guard their territories, incumbent players like Bharti Airtel and the erstwhile Idea Cellular and Vodafone India had to trim their tariff prices, financially straining the beleaguered telcos at a time when they were also burdened with their adjusted gross revenue (AGR) dues to the government.

The Jio-induced churn in the sector even led to consolidation with the merger of Aditya Birla Group-led Idea and UK-based Vodafone Group’s India arm into Vodafone-Idea in 2018. Since Jio’s entry, it has taken several years for the existing telcos to set the right tariffs, average revenue per user and even deal with the AGR issue. 

Just when they were finding their feet, another billionaire businessman from Gujarat is looking to disrupt the space—this time, with 5G. On Tuesday, the government announced that Adani Data Networks, a unit of Adani Enterprises, led by the world’s fifth largest man Gautam Adani's conglomerate Adani Group, applied to participate in the much-anticipated July 26 auction of the 5G spectrum.

Adani has won most of the bids across all the sectors that he has ventured into in the recent past which could be a cause for concern for the incumbents, more so for Reliance Jio which is yet to make good of the investments (Rs 1.5 lakh crore) made in its telecom business.

Adani’s Telecom Ambitions 

Adani Data Networks, in which Adani Enterprises’ equity holding is 100 per cent, got the initial approval for the grant of unified licence with authorisation for the Gujarat circle just days before the July 8 deadline for the 5G auction participation.

The company showed a net worth of Rs 248.35 crore in its application to participate in the auction, according to data posted by the Department of Telecommunications (DoT). Adani Enterprises’ Rs 4,730.66 crore net worth will be counted for calculating the net worth towards the eligibility for bidding. 

In contrast, Reliance Jio Infocomm, a subsidiary of Jio Platform, the unit that holds the digital assets of Reliance, which has also applied for participation in the spectrum bidding process, has shown a net worth of Rs 1,97,790 crore as on March 31, 2022. 

"As India prepares to roll out next generation 5G services through this auction, we are one of the many applicants participating in the open bidding process," the company had said, adding its intention is not to be in the consumer mobility space. 

Questioning the group’s claim, Goldman Sachs said, "We believe if the Adani Group does end up buying spectrum in the upcoming auction, it could potentially increase competition in enterprise 5G, in addition to opening the doors for the Adani Group to expand into consumer mobile services over time." 

The Adani Group has said that it will use the 5G network to create a private network to support its businesses—from airports and power to data centres. 

Mumbai-based brokerage firm Motilal Oswal said that within the Adani Group, its interest in the business-to-consumer business is increasing and it could extend beyond its FMCG-led offerings. 

The management stated that the high-speed 5G data will also be used for consumer-centric offerings like its own digital platform, which includes super apps, edge data centres and industrial command and control centres but most of this could be achieved by simply leasing network/spectrum from telcos. So, there exists a possibility of an expanded telecom foray over time, said Motilal Oswal. 

Stage Set For Competition  

The Adani Group's entry into the spectrum bidding will intensify competition in the upcoming auctions as well as the enterprise 5G space, say brokerages. 

In a note on the Adani Group's plans to bid in the 5G auctions, BofA Securities said, "We consider this news flow negative for incumbent telcos as it increases competition in upcoming auction bidding as well as in the long-term opportunity to target the enterprise space." 

Adani's entry will create uncertainty over spectrum pricing in the 5G auctions, says brokerage firm CLSA. "The question is why would Adanis bid in auction versus awaiting a direct spectrum assignment? Adani's entry will create uncertainty over spectrum pricing in the 5G auctions which was expected to see bidding competition primarily between Bharti Airtel and RJio," it said in a report. 

Meanwhile, plagued by an intensely competitive environment in the last two decades, the thought of a new entrant in the sector gives investors jitters for the next round of severe competition which could derail the current structural benefits (ongoing pricing improvement and market share gains) in the telecom sector, said Motilal Oswal.  

With so many ifs and buts, clearly, the answer to the Adani Group’s venture into the telecom space is not a binary one. The narrative of pricing and market share gains for Bharti may continue, but it may see a near-term knee-jerk reaction from investors, the brokerage firm adds. 

Amid all the uncertainty, one thing is certain. Ripples of Adani’s entry will be felt but we will have to wait and see if it will be a déjà vu of Jio’s disruption.