JP Morgan on Wednesday said that the spectrum right acquired by Reliance Jio in all 22 circles across India for a total cost of Rs 571 billion (~$8 billion) was substantially higher than the forecast of $3 billion.

The spectrum, which was purchased in the recent auctions held by government of India, has been acquired across 800 MHZ, 1800 MHZ and 2300 MHZ. With this, total spectrum has increased by 55 per cent to 1717 MHZ.

“We also find the Chairman’s comments about the spectrum purchase allowing it to enhance the experience for the ‘next 300mn subscribers’ as intriguing and some might read it as indicating that Jio remains focused on subscriber additions over tariff increases. We maintain our view that tariff increases over FY21-23 are likely going to be substantial, driving large earnings increases for RIL,” it added.

With this purchase, the Jio has strengthened its overall spectrum footprint Chand can utilise the spectrum for transition to 5G services. An average life of spectrum now stands at 15.5 years.

In terms of payment, the telco has decided an upfront payment of Rs 199 billion and deferred payment is Rs 378 billion, which is spread over 18 years with interest computed at 7.3 per cent per year

“In our view there is likely going to be some associated capex though not very large. Overall we were forecasting a total capex of $9bn over FY21-23 (including spectrum purchases)”, JP Morgan said.

Speaking about Bharti Airtel’s spectrum purchase, it said that the purchase amount fell in line with estimates.

On Tuesday, the Airtel announced that it has acquired 355.45 MHz spectrum across Sub GHz, mid band, and 2300 MHz bands for a total cost of Rs 187 billion, which was slightly below than Morgan’s estimate of Rs 220 billion.

“While we had expected likely outgo for Reliance Jio at Rs 350-360bn, the company spent Rs 571bn, with both renewal of expiring spectrum, as well as additional purchases of spectrum across various bands,” it added.

“As we expected, Vodafone Idea showed limited interest in this auction, and only purchased 11.8Mhz of spectrum worth Rs 20bn to enhance coverage in 5 circles,” it added.

Morgan Stanley said that overall bids have turned out to be higher than our expectations.

The three private telcos have cumulatively spent US$10.5bn, which is much higher than what we were expecting at US$2.5bn for Jio and US$2bn for Airtel. As the competition in the bidding was low, the supply of spectrum turned out to be higher than the demand, and hence telcos were able to pick up spectrum at reserve prices, Morgan Stanley said.