In cricket-crazy India, the annual player auctions for the Indian Premier League (IPL) are a big draw. Fans are glued to their digital screens, eagerly waiting to hear the destination of their favourite players. Come June, something similar will be witnessed in the country when the much delayed and highly anticipated 5G spectrum auction takes place. There have been several important announcements on this front as well as some disagreements that have unfolded in the last few weeks. We give below a quick snapshot of the latest events:
- The Department of Telecommunications (DoT) has accepted the Telecom Regulatory Authority of India (TRAI) recommendations to cut the 5G spectrum base price. However, the DoT has also decided that the spectrum will be auctioned for 20 years instead of the earlier announced 30 years. The industry has been pushing for over 90% reduction in the base price as spectrum prices in India are very high compared to global benchmarks.
- The government has also decided to prohibit the direct allocation of spectrum to enterprises for private 5G networks. Operators are in favour of the decision, but tech companies have strongly opposed it.
- TRAI had recommended that the mmWave spectrum in the 24.25-28.5GHz range be used for both mobile as well as satellite services. But it is reported that the government may not auction the spectrum in the 27.5-28.5GHz range and leave it for satellite services.
We expect many more developments in the coming weeks that will pave the way for 5G services in the country. While India’s telecom industry has grown significantly over the last few years, supported by the pandemic-induced demand as well as digitalization, there are still some market dynamics that can hamper the advent of new technologies and services.
- Low fiberization: Currently, 34% of the mobile towers are fiberized and the government wants this number to increase to 70% by the end of the 2023-24 financial year. This is necessary to roll out 5G in an efficient manner and will also boost 4G services. But there are several challenges to achieving this, starting from the right of way (RoW) rules and approvals to lengthy and complicated bureaucratic procedures and lack of skilled manpower.
- Bidding intensity: The base price reduction is positive news but not enough to give breathing space for an effective rollout and expansion of 5G services in the country. Considering the financial stress of the operators and their inability to raise tariffs to more profitable levels due to fierce competition, keeping a high base price will adversely impact participation. It may be noted here that Vodafone Idea is yet to attract noteworthy funding and is continuously losing subscribers to Airtel and Jio. This may result in muted bidding intensity and the auction process may become a battleground for only two operators — Jio and Airtel.
Other market dynamics such as rationalizing regulatory levies like USOF and SUC to ease cash flow concerns and underdeveloped domestic hardware manufacturing (important in view of the ban on Chinese vendors) also add to the challenges for a smooth 5G launch in India. Although the government is aggressively rolling out policies in favour of local manufacturing, it will take another two to three years to show an impact on the ecosystem. Additionally, developing India-centric use cases is important as 5G technology is not limited to catering to consumer-specific needs.
Where are we now?
A look at the current telecom landscape of India:
5G smartphone availability: Counterpoint Research expects that by the end of 2022, 5G smartphones will account for 38% of the total handset shipments in India. This is expected to increase to 52% by the end of 2023. Intense competition among OEMs, availability of cheaper 5G chipsets and declining prices of devices will enable brands to push more 5G devices into the market. According to our latest consumer study, buyers consider the 5G feature among their top three priorities when purchasing a smartphone. This reflects consumer awareness and a growing market base while operators are preparing for 5G launch.
What lies ahead?
- Delayed auction ≠ Missed 5G opportunities: Although 5G has been launched in various parts of the world and its commercial launch is delayed in India, this does not imply the country has missed the 5G bus. India can use this to its advantage as there is a lot of learning and established practices that can come to India. The local customization along with the implementation of globally successful models will make it possible for India to go straight into a commercial rollout. We expect operators to focus on the 3.5GHz network rollout for initial 2-3 years as it is comparatively cost-effective and has adequate device availability in the market. Almost every mid-range to premium segment smartphone launched in India over the last two years supports this spectrum band. We expect 5G smartphone launches in the budget segment to pick up momentum this year. Later, mmWave can come into play when there are use cases in place that demand that type of speeds, supported with device availability.
- Who should own the private network spectrum? Enterprises are demanding direct allocation of spectrum for private networks as it gives them better control of the networks and guarantees to manage solutions/operations as per the changing business needs. However, deploying 5G connectivity solutions is not their core business. Plus, we should not overlook the whole set of technologies that come along with 5G technology, such as edge computing, IIoT applications and hybrid cloud. Therefore, operators will always have a role to play irrespective of who owns the spectrum. And allocating spectrum to enterprises will not limit their return on 5G investments. They should rather capitalize on the growing interest of enterprises in digitalization. The key concern should be whether optimum amount of spectrum will be available for captive use?
- mmWave band: It is unlikely that operators will choose to operate in the mmWave band initially. Although this band allows faster speeds and higher bandwidths, its pricing is still higher than operators’ expectations. It will also be very expensive to roll out as operators will have to heavily invest in small cells due to the shorter range of mmWave. Moreover, the Indian market does not have devices supporting this band. But this does not mean the band is not an essential part of 5G networks. It should be put up for auction as many scenarios using enhanced mobile broadband will directly benefit from the low latency and high-capacity connectivity of mmWave. These include crowded areas and hotspots with a large number of users (such as stadiums, surveillance and video broadcast) and suburban clusters. Outdoor FWA will be the main use case and areas beyond fiber connectivity can also be the target market. mmWave will complement operators’ 5G services in future and provide a vital layer to their network strategies.
India’s telecom industry needs an action plan that simultaneously sees the development of the entire ecosystem. Striking a balance between revenue generation through spectrum auction and long-term sustainability of the telecom sector is crucial. The potential of what 5G technology has to offer is unprecedented. The policymakers, operators, hardware vendors and enablers should solely focus on the advancement of the technology and the proliferation of one sector should not come at the expense of the other.