Adani's Entry Into 5G Makes Telecom More Than A Two-Horse Race Between Jio And Airtel

India’s telecom market has just gotten more interesting, with Gautam Adani entering the 5G spectrum race for captive use in his own ports-to-power conglomerate. While the Adanis have been at pains to emphasise that their bid for spectrum is only intended for private usage within the group, with Vodafone Idea valued at just over Rs 28,000 crore — of which 32 per cent is with the government after the conversion of dues into equity — an Adani entry into the consumer side of the business at a later stage cannot be ruled out.

According to Forbes, Gautam Adani is Asia’s richest billionaire ever. He certainly does not lack the resources to bankroll and consumer foray.

Thus far, we have been thinking that Indian telecom will have two strong private players, Reliance Jio and Bharti Airtel, and two shaky players, Vodafone Idea in the private sector, and Bharat Sanchar Nigam Limited (BSNL) in the public sector respectively.

Possibilities were opened up when the government announced that captive network operators will be allocated 5G spectrum — ie, they won’t have to bid for it at auctions scheduled for later this month. This announcement had set off a lobbying war between big tech players, including Tata Consultancy Services (TCS), Google, Amazon, etc, who want spectrum for private use, and the Cellular Operators Association of India (COAI), the lobbying arm of the consumer telecom industry. The latter has said that direct allocation means the creamiest part of the 5G business, solutions sold to companies by the telcos as a package, will now be cannibalised for private use.

The entry of Adani directly in the spectrum race — instead of waiting for allocations of spectrum later — implies that the group is planning to bid for spectrum in the millimetre band (24250-27500 Mhz band), or even in the pricier 3.5 Ghz band, at least in the circles it is interested in. According to a report in Business Standard, the Adanis would have to pay barely Rs 2,800 crore (spread over two decades), for 400 Mhz of all-India spectrum in the millimetre band, and something more for the 3.5 Ghz band in some circles, again with payment terms spread over 20 years.

This mode of entry into telecom is interesting, for thus far telcos have had to enter the business at the mass end with low tariffs (mostly pre-paid consumers), with the enterprise parts of the business and post-paid consumers subsidising this spread.

But Adani will enter at the top end of the business in 5G, even assuming it is starting off as a private network. If this business is then expanded to providing commercial services to other enterprises, the telcos operating at the mass end of the market will start losing the most profitable parts of their businesses.

At some point, one cannot rule out an Adani entry into the consumer end of the business. This is because Vodafone Idea has two promoters, Vodafone Group UK, and the Aditya Birla Group, who do not want to pump in more money into the loss-making enterprise. At some point, one of them may want to exit, once the other promoter agrees, and the government too may want to exit from its 32 per cent stake at a profit.

Neither Airtel nor Jio can bid for Vodafone, since that would fall foul of competition law. That leaves Gautam Adani as the only logical local bidder for Vodafone Idea’s shares with the government.

With 259 million subscribers, according to April data from the Telecom Regulatory Authority of India (No 3 after Jio’s 405 million and Airtel’s 361 million), Vodafone has the potential to raise market share, provide it gets a rich promoter with the willingness to invest.

Adani is one of the smartest businessmen in India after Mukesh Ambani.