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5G spectrum exorbitantly priced at $7 billion per 100 MHz, says CLSA

June 10, 2019
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According to a report by CLSA, 5G spectrum in India is exorbitantly priced at $7 billion per 100 MHz, which is nearly four times that in Korea, and will result in a big drag on telecom companies’ internal rate of return (IRR). Only significantly lower prices will justify above cost IRR and spectrum purchases, the brokerage firm said.

The spectrum price in India is a result of the Telecom Regulatory Authority of India’s recommendation of selling 275 MHz of spectrum in 3.3-3.6 GHz band at the reserve price of Rs 4.9 billion per MHz. This means that operators will have to pay about $7 billion for 100MHz spectrum.

As per the report, even with aggressive operating assumptions (capex to sales of 20 per cent, incremental margin at 70 per cent), incremental investment IRR will at most touch 7 per cent, given current 5G spectrum prices. Bringing down the 5G spectrum costs by 33 per cent with same assumptions can boost 5G IRR to 13 per cent, the report said.

Besides, with 4G penetrations for Vodafone Idea and Bharti Airtel still at 25-30 per cent of customer base and 5G network growing, it will be downbeat for operators to spend over $7 billion on a project offering restricted returns.

Alternatively, deferring its purchase by the three major telecom operators may also lead to a cut in the price of spectrum, says the report.

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