The verdict is out and does not surprise many: India’s 5G dream is unlikely to be achieved by 2020. The country’s low fibre density, policy bottlenecks, right-of-way (RoW) constraints and costly spectrum are the major obstacles to 5G’s success. The National Digital Communications Policy introduced by the government in 2018 to address some of these issues has fallen short of expectations.

Despite political support for the early roll-out of 5G, telcos in India are sceptical about the readiness of the ecosystem. For 5G to become a reality, 70 per cent of the towers should be connected to fibre. Currently, the number of towers connected to fibre in India is staggeringly low at around 25 per cent as compared to around 80 per cent in China.

Government initiatives to strengthen the country’s infrastructure were not effectively implemented. One such initiative is the BharatNet project funded by the Universal Service Obligation Fund to improve broadband connectivity in rural areas. The government had aimed to provide internet connectivity to 250,000 village blocks, but achieved only about half of its target as of May 2019. To improve the infrastructure, telcos will have to invest huge amounts in fibre backhaul. But with operators reeling under debt of over $100 billion, as per COAI’s 2018-19 annual report, any additional expenses towards spectrum and fibre may further stretch the balance sheets and hinder their recovery.

Approval processes are often cumbersome and steep rates are charged by various agencies for tower installations. Hence, several cities have only few towers, which results in network performance issues such as call drops. To fast-track fibre and network roll-outs, the government should streamline the RoW policy by adopting a single-window clearance system at the central and state levels. This would help simplify the process of setting up telecom infrastructure. Further, rules for tower installation should be consistent across states.

At a recent industry event, Airtel CEO Gopal Vittal spoke on the RoW issue. Vittal noted that the DoT has made progress with RoW approvals, but it is still “work in progress”, especially in optical fibre, which “requires copious amounts of approvals at even municipal levels”.

Deadlock over spectrum reserve price could delay 5G launch

The Indian government is bullish about the upcoming 5G auction, but the telcos are crying foul over inadequate spectrum and its high pricing. The regulator has assigned 5G in the 3.3-3.6 GHz band, with just 300 MHz of airwaves available. With the defence forces and ISRO together claiming 125 MHz of spectrum, the operators are left with a mere 175 MHz for bidding. Moreover, the base price for 5G spectrum of around Rs 500 billion per 100 MHz is high in comparison to other developing markets. Vodafone Idea ex-CEO Balesh Sharma spoke about this challenge at an industry event, “The proposed cost of spectrum will not make this happen. Stress is there in the sector. Spectrum cannot be taken by one or two players and there should be a cap of 35 per cent on every band of spectrum for all players to participate.”

The year-on-year decline in the annual telco revenues in India presents the dismal state of the telecom sector. The operators have recorded negative-free cash flow, which means that they are struggling to generate enough cash to support their business. In this scenario, it seems impractical for telcos to bid for such limited spectrum at such inflated costs. Moreover, operators might not benefit much from these investments. Currently, India is way behind in terms of industrial implementation of 5G, including smart city applications, self-driving and smart grids.

Asset monetisation and network sharing is the way forward

To lower debt, telcos often hive off their tower business to investors or independent tower companies, or share their fibre business with third parties to improve their financial situation. Airtel has sold off its optical fibre business to Telesonic Networks. Meanwhile, Jio transferred its fibre and mobile tower units to two infrastructure investment trusts set up by Reliance Industrial Investments and Holdings Limited. Vodafone Idea and Airtel have plans of forming a joint venture to share their fibre assets. Such deals help operators raise funds and outsource operations. To some extent, it also reduces the capex requirements and frees up capital to invest in network expansions and upgrades.

To conclude, with the growing demand for a complex range of new mobile services (including in the IoT space), operators worldwide are gradually shifting tower management to private equities or specialised companies for providing better quality of service and coverage. Optical fibre assets are often part of this shift. India is already on its way to finding out if this can accelerate 5G deployment for the for the mass market.

By Subramanian Venkatraman, Principal Analyst, MTN Consulting, LLC