India's reserve price of USD 70 million per MHz is "expensive", and will force Vodafone Idea and Bharti Airtel to participate in 5G spectrum auctions in a "limited" way, global rating agency Fitch said on Monday.
The comments come weeks after nearly all the telcos had expressed their concerns on the spectrum pricing.
"The Telecom Regulatory Authority of Indias (TRAI) 5G spectrum price for spectrum band of 3300-3600MHz of USD 70 million per MHz is expensive compared with 3G and 4G spectrum auctions in the past," the agency said in a note.
It said Indian telcos, which are already stretched, will have to shell out USD 7 billion for a pan-India license with 100 MHz of spectrum.
The agency said it is unlikely for the auction to be undertaken in 2019. In June, telecom minister Ravi Shankar Prasad had said that the Government is likely to hold the auction this year and also start trials in the next 100 days.
Fitch said the auction will only likely to happen in the second half of 2020 as the government and TRAI will require time to prepare.
"We expect limited participation in the 5G spectrum auctions by Bharti and Vodafone-Idea given the expensive spectrum and limited business case of 5G in the short to medium term," it said.
The agency said 5G may have only limited commercial viability in the short term, as 4G penetration is still low in India and there is little appealing content or applications which cannot be addressed by 4G speeds.
Also, Indian telcos lack extensive intra-city fibre infrastructure, which is responsible for poor internet experience relative to other markets and is also critical in order to provide a seamless 5G experience, it said.
In the report focused on Bharti Airtel, the agency said the third biggest telco by subscribers will earmark USD 1 billion towards upfront 5G spectrum payments in FY20.
The agency said it has a stable rating on Bharti's 'BBB-' rating as it feels the average revenue per user are on the way up and also due to de-leveraging work through the sale of non-core assets by the company.
Despite the experience of the last two years, where the entry of the deep-pocketed Reliance Jio wrecked the telecom market, the agency said it expects competition to ease as three broadly equally sized telcos have emerged, each with a 31-33 per cent revenue market share.
"We expect the blended average tariff to rise by 5-10 per cent during FY20, underpinned by the incumbents' introduction of a minimum mobile tariff of Rs 35," it said.
This estimate was attributed to expectation of Jio starting to raise tariffs gradually as it starts to focus on monetisation of its large investment.