The emergence of 5G is set to accelerate digitalisation opportunities in India, by unlocking monumental economic and technological benefits. The uptake of these services has been phenomenal in the country. Around 50 million 5G customers were registered in India within the first six months of the launch of 5G services. Further, the cumulative 5G smartphone shipments reached 100 million by the second quarter of 2023. There was a significant increase in monthly data usage per smartphone from 26 GB in 2022 to 62 GB after the launch.
India’s 5G growth story
The pace of 5G deployment in India has been record-breaking and it is being hailed as the fastest in the world. Over 270,000 5G sites have been installed within the first nine months of the launch of 5G services. This means that one tower was installed per minute, which allowed Indian telecom operators to reach their three-year 5G goals within the first six months.
The overall cost for 5G roll-out in India has now reached $75 billion. Meanwhile, different government policies, such as Gati Shakti, have paved the way for an accelerated digital infrastructure roll-out in the country. The download speed has also witnessed a massive overhaul with the 5G download speed being around 26.2 times higher than its 4G counterpart. With this, one can concur that India is set for growth in the 5G space.
Monetising fibre assets
The monetisation of existing and upcoming assets is considered one of the major growth drivers for further escalating the demand for 5G networks in India. By fiberising towers, introducing intercity fibre, using microwaves, and increasing the deployment of fibre-to-the-curb, as well as fibre operations and management, telcos will create a revenue opportunity of Rs 190 billion-Rs 285 billion by 2025-27. This is also the best way to monetise the country’s fibre assets to its highest potential. Even the deployment of outdoor small cells will provide a revenue opportunity of Rs 70 billion-Rs 85 billion by 2025-27. India can also monetise edge data centres, which offer a revenue-generating potential of Rs 15 billion-Rs 29 billion by 2025-27. Similarly, building and operating more data centres and providing stronger Wi-Fi coverage will help in increasing revenue generating opportunities.
Augmenting OFC presents lucrative opportunity for towercos
Augmenting optical fibre cable (OFC) presents significant monetisation opportunities for tower companies. However, in order to achieve this, towercos need to fiberise all their towers. Towercos that are deploying small cells as part of their 5G network expansion also need fibre backhaul. They are focusing on connecting end-to-end networks, in order to address the last-mile challenges. Meanwhile, there is an underlying focus on catering to the fibre-to-the-X market, as it represents the fibre requirements in commercial and residential markets.
NetCo business model
Adopting the NetCo business model can enable towercos to reduce cost and facilitate faster time-to-market. The four key value propositions that comprise the model are:
- Revenue diversification: Under this model, towercos can upsell to existing tenants, attract tenancies from operators planning to expand their coverage and become network partners to aspiring new entrants;
- Economies of scope: The model allows equipment to be shared across multiple telcos since they tend to follow similar spectrum strategies in the same geographies;
- Flexible and scalable pricing: It has a pricing mechanism based on technology (4G vs 5G) and frequency (1800 MHz vs 700 MHz), which is better aligned with changing network configurations.
- Lower cost of capital: The model offers longer contracts (about 10-15 years) and higher switching costs that lead to predictable cash flows and enable access to cheaper capital.
Going forward, a few key recommendations can be looked at for laying a strong foundation for the next digital frontier for the 5G era. These include enhancing the scope of infrastructure providers (IP-1s); legal enforcement of right-of-way rules; mitigating impediments in OFC deployment and infrastructure sharing; encouraging the involvement of discoms in small cell deployments; subsidising fibre deployment through viability gap funding; and securitisation of telecom infrastructure. These would help in easing the headwinds for overall digital infrastructure deployment in India.
Based on a presentation by Swapnil Srivastava, Global TMT Analyst Leader, EY