What does Adani's 5G spectrum bid mean for the likes of Jio and Airtel?

Within two months after foraying into the cement sector and sealing the second spot in the list of country’s biggest cement manufacturers, Gautam Adani has entered another uncharted territory now. And the stakeholders in the sector are worried.

Soon after Adani announced its plan to take part in the 5G auction, the shares of Bharti Airtel tumbled. The Adani Group has applied to participate in the 5G auction and will compete with the likes of the Reliance Industries and Bharti Airtel, but only for private captive networks.

The group has clarified that it does not intend to enter the consumer mobility space. But the decision has spooked telcos who say that it will eventually bring the group into direct competition with them as 40% of their 5G business revenues are projected to come from enterprises.

Adani has certain potential advantages in the 5G enterprise segment. By virtue of straddling sectors like ports, power stations, utilities, airports, aircraft services, data centres, industrial parks and manufacturing facilities, the business house already has a large captive base to build its own private network. And analysts believe that Adani will expand the business by also offering private network solutions to other enterprises. The result would be intensified competition for the country’s telcos with potential revenues from the enterprise segment, which is estimated to be the mainstay of the 5G business, and leasing of airwaves taking a hit due to Adani’s aim of offering private captive networks as a service.

In particular, the prospects of Adani group sparking off a possible bidding battle could throw things out of gear for cash-strapped Vodafone Idea.

The group will have to shell out a nominal Rs 2,800 crore for 20 years for a pan-India millimetre band spectrum to power its 5G private networks. It can also pay this sum in 20 equal installments, easing its overall annual pay outs. The group could also go in for around 10 MHz of spectrum in the more expensive 3.5 GHz band. Even here, the bill would be affordable at Rs 3,170 crore for 20 years, with similar long payment terms.

If setting up private networks was the group’s only intention, then telcos believe that it would have been cheaper for Adani to go through a different route. The government has cleared the setting up of captive private networks for enterprises and would allocate them spectrum directly, which would be cheaper as it would be given at an administrative price instead of through auctions. Take the example of Tata Communications, which has decided not to go through the auction route. Instead, it will wait for the government to give spectrum directly to enterprises. After buying spectrum from the auctions, the conglomerate will be able to sell enterprise offerings like private networks as a service. And, just like telcos, the group could also lease out 5G airwaves to enterprises that want to set up their captive networks.

And, there’s a whole sunrise sector at stake. In India, the potential market size of private 5G services is pegged at an estimated 570 million dollars by 2026. Over the next three years, the segment is estimated to grow at about 35 per cent on average.

Mohit Mittal, Partner, Praxis Global Alliance says Adani will pilot 5G services in their operations first before offering to others. Captive testing and capital give Adani upper hand in offering enterprise 5G, he says adding that Adani can target business by size or industry depending on strategy.

Telcos also fear that the Adani group’s long-term strategy could be to enter consumer mobility space through the acquisition of a telco or through taking a strategic position in one of them.

The surprise telecom entry of Adani is not something new. The sudden entries of big corporations, over the years, into this space have shaken up the dynamics completely. For instance, Reliance Industries Ltd (RIL) marked its entry into the telecom sector by acquiring a majority stake in Mahendra Nahata-owned Himachal Futuristic arm, Infotel Broadband, which was the only company back then that had won Broadband Wireless Access (BWA) spectrum in all 22 zones in India. Infotel Broadband was later renamed Reliance Jio Infocomm and it is currently the leading telecom player in India. It would be interesting to see how Adani’s entry would alter the 5G spectrum auction dynamics.

Could this be a Jio moment for the enterprise telecom segment, where a new entrant with deep pockets, competitive advantages and new technology ends up cornering a significant share of the pie?