Top player Reliance Industries' Jio and rivals Bharti Airtel and Vodafone Idea have failed to lobby New Delhi to stop the allocation that will let various enterprises, including Amazon.com and Tata Consultancy Services, to get airwaves without auction.
"The telecom companies are quite upset, there will be an estimated 40% potential 5G revenue loss," said S.P. Kochhar, director general of Cellular Operators Association of India, which represents the three telcos.
They were counting on demand from the enterprise side to justify investments worth billions of dollars as uptake by price-conscious retail consumers will be slow, Kochhar added.
"That is a major disappointment."
The rise of private 5G networks dims the business case for the telcos, which are now likely to make muted bids in the auction, five other telecom industry executives told Reuters.
Reliance, Airtel and Vodafone did not respond to Reuters emails requesting comments.
The government, however, has said that permitting private networks, like in South Korea and Germany, would spur innovation of automation and other technologies in places like factories or ports, without worrying about bandwidth or latency issues.
Broadband India Forum (BIF), which represents tech firms like Tata Consultancy and Amazon.com, has said private 5G networks will accelerate digital transformation.
'RISK OF DILUTION'
The launch of 5G services in the world's No.2 mobile market after China is a "watershed moment" for the country and the global 5G market, research group Omdia said this month.
About 50% of India's enterprises want to start using 5G within 12 months and private network suppliers are in demand, Omdia said in its report.
Analysts at India's IIFL Securities flagged a "risk of dilution to telcos' 5G-linked upside from enterprises".
Telecom companies have already complained of "too high" base 5G spectrum prices, seen as among the highest in the world.
And now with private networks expected to chip away at demand, telecom giants are likely to only bid for four of the 10 bands on offer for an estimated $9 billion, IIFL said.
Industry group GSMA says overall spectrum costs in India as a proportion of telcos' annual recurring revenue stood at 32%, the highest in the world.
The bleak outlook comes as Airtel and Vodafone reel from a price war triggered by Reliance in 2016.
Airtel and Vodafone have reported losses in recent years, squeezed also by spectrum dues to the government, though recent mobile data price hikes have slowly started helping at least the former to clock profits.
The potential loss for telecom firms is a boon for companies planning to introduce private 5G network services. Globally, over two dozen countries have paved the way for such networks.
India has said there would be no entry or license fee for 10-year licences for private networks, which can be built by firms with a net worth of over 1 billion rupees ($13 million).
They will have to pay an application fee of 50,000 rupees ($634). It is not clear if there will be any other charges.
The spectrum will be assigned after "demand studies" and regulatory clearances.
The government aims to begin the rollout of 5G - which can provide much faster data speeds than 4G - by spring 2023.
A public telecom network optimises needs of the masses, but the varying demands of an enterprise "can be achieved only through dedicated captive private 5G networks", BIF has said.
"Private 5G networks provide India an excellent opportunity to catch up with the world," BIF said in a statement in June.
(Reporting by Aditya Kalra and Munsif Vengattil in New Delhi; Additional reporting by Supantha Mukherjee in Stockholm; Editing by Himani Sarkar)
By Aditya Kalra and Munsif Vengattil