The 5G spectrum auctions, which took place in July 2022, have added a new dimension to the Indian telecom industry. The auction concluded with the government garnering Rs 1,502 billion by putting 72 GHz of spectrum, with a validity period of 20 years, on the block. The auction was for the frequency bands 600 MHz, 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz, 3300 MHz and 26 GHz. The country could see the launch of 5G services in select geographies by the October-December 2022 quarter.
Reliance Jio emerged as the biggest bidder, acquiring almost half of all the airwaves sold for a consideration of over Rs 880 billion, and it was also the only bidder to acquire spectrum in the premium 700 MHz band. The 700 MHz band, which is best suited for coverage in high density areas, is ideal for data networks and consumer services. Only the 1800 MHz spectrum band saw the base price being exceeded in the bidding. All the other bands were sold at their respective reserve prices except for the 600 MHz band, which saw no takers.
Bharti Airtel, Vodafone Idea (Vi) and Adani Data Networks were among the other bidders. Airtel committed Rs 430 billion, while Vi committed Rs 188 billion. A total of 51.2 GHz was sold. Adani Data Networks bid only Rs 2 billion for spectrum in the 26 GHz band.
The first annual instalment of payment will be around Rs 133 billion. Payments can be made in 20 equal annual instalments, to be paid in advance at the beginning of each fiscal year. The bidders will be given the option to surrender spectrum after 10 years, with no future liabilities.
On the technical side, 5G has the potential to offer vastly increased speeds and enable many new services that would create new revenue streams and accelerate growth across the macro economy. The availability of commercial 5G services would also boost demand across the handset, electronics and software segments as new hardware and new software would be required to leverage the new possibilities.
On the commercial side, the entry of the Adani Group potentially changes the dynamics of the sector. It may mean the eventual entry of a new telecom service provider, although the Adani Group has acquired very little spectrum and says it will utilise spectrum only for its own internal purposes at this point.
Prior to the auctions, the telecom service sector was heading towards becoming a duopoly, with Reliance Jio and Bharti Airtel going neck and neck while the cash-strapped Vi trailed behind and the PSU Bharat Sanchar Nigam Limited (BSNL) continued to struggle with excessive manpower and huge accumulated losses. The revival package for BSNL may or may not work and it will remain far behind since it will be only launching 4G as other networks move to offering 5G. Meanwhile, the auction bids indicate that Vi will find it hard to compete in the new 5G space.
The Adani Group could potentially be a serious new player although the modest outlay suggests it is not considering this at the moment. At the very least, even if it remains focused on internal services, that would take a big chunk of potential corporate custom off the market. The group has assets spread across key infrastructure sectors such as ports, airports, gas and power, all of which may now be serviced by its own internal 5G network. Apart from servicing the needs of its own group entities, the control of airports, in particular, allows for the monetisation of real estate. This means the group could service other commercial entities within airports’ operating area as well as cater to individual passengers who use airport Wi-Fi services in transit. Moreover, the group already holds right of way in many places due to its gas and power networks. It could, therefore, launch commercial 5G services at a significant speed if it chooses to acquire spectrum and go into telecom services.
Every new generation of mobile telephony has enabled a host of new services as speeds have improved. For example, the 3G network enabled internet access while 2G was mainly voice. The shift to 4G LTE meant faster data transmission, which enabled faster services. This has enabled a host of new services – the government’s Digital India policy thrust where government services and banking are delivered online, and the entire start-up ecosystem with its emphasis on digital services is possible only due to mobile broadband.
The 5G network promises to offer far greater speeds – at least 10x that of 4G – along with lower latency and far more options for small cell and local Wi-Fi connectivity. 5G technology depends largely on multiple small cells for good propagation because the spectrum used can generate high speeds, but it is most effective over short distances and it can be blocked or attenuated by buildings, etc. It can enable a whole range of new services dependent on IoT, enabling smart homes, smart offices, and smart vehicles and appliances. Apart from this, delivery of, say, video content could improve dramatically because speeds are much greater. The use cases for 5G, particularly corporate use cases, could increase by orders of magnitude since, for example, virtual reality and augmented reality use cases can be easily enabled along with machine-to-machine communication, connected vehicles, etc.
At present, we can assume that Adani will focus on private networks while Jio and Airtel will launch across India and Vodafone Idea will launch very selectively. Jio is reportedly planning to launch 5G in nine cities initially and increase coverage to the thousand top cities by the end of the calendar year. Airtel will try and match this with a selective initial launch followed by a pan-Indian roll-out and a commitment to cover every town by 2024. Vi is likely to be much more selective, given that it bought less spectrum and is also very cash strapped.
There’s every likelihood that the first year or even the first two years will see low uptake since there will be a major difference in tariffs and other costs to using Wi-Fi. Corporate uptake may be quite strong given the many new commercial use cases of 5G and the fact that it could lead to strong improvements in efficiency and potentially cost savings, or revenue gains, for many corporates.
However, India is an exceedingly price-sensitive market as telecom service providers are well aware. Using 5G will require new handsets. At this time, only around 21 per cent of subscribers have 5G-ready devices. Tariffs too are bound to be on the higher side for an individual user. There is talk that pay-as-you-go/ prepaid services will be priced at a floor of around Rs 500 per month at the initial stages, which is more than thrice the going rates for 4G prepaid. While surveys indicate that most users would be willing to pay a significant premium of 50 per cent on tariffs for 5G services, individuals switching to 5G will initially tend to come from the higher-income groups and the post-paid category. The first year of services may see around 40 million subscribers signing up for 5G.
However, very rapid uptake is foreseen once services stabilise. By 2027, five years down the line, it is projected that there will around 500 million 5G subscribers in India – that is roughly 39-40 per cent of all subscriptions. Much of this will be driven by migration and upgrades from the current 4G subscriber base. Data usage was around 20 GB per subscriber per month in 2021 and is expected to rise to around 50 GB per month by 2027, at a CAGR of 16 per cent.
In another projection, 5G may enable Indian mobile service providers to generate $17 billion in incremental revenue from enterprises by 2030. This will be driven by the manufacturing, energy and utilities, ICT and retail industries. It will also enable better provision of remote working, education, remote healthcare, shopping and other services, and may lead to entirely new revenue streams from rural broadband, mobile cloud gaming, cloud-connected robotics, etc.
The 5G auctions and service roll-outs have been long overdue. The strong response to the auctions and the surprise entry of the Adani Group give cause for optimism. This could give a fillip to the entire economy and accelerate the post-pandemic recovery.