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Find Out How 5G Will Impact Telecom Business In India

By Gyanendra Kumar Keshri

With the successful auction of spectrum, India has come closer to rolling out the fifth generation (5G) of telecom services. Consumers in the cities like Delhi, Mumbai, Chennai, Bengaluru, and Pune are likely to start getting 5G services from October.

How will the fifth generation of cellular technology impact telecom services and business in India?

The fifth generation cellular technology is around 20 times faster than its predecessor fourth generation (4G) technology. The theoretical peak speed of the 5G technology is 20 Gigabits per second (Gbps). The peak speed of 4G technology is 1 Gbps.

Gbps is a measure of bandwidth on a digital data transmission medium such as optical fiber. It denotes a data transfer rate equivalent to one billion bits, or simple binary units, per second.

Clearly, the speed of uploading and downloading data will be much faster under the 5G technology than the 4G technology.

However, it’s not just the speed that makes 5G superior to the fourth generation technology. The 5G comes with lower latency, which would significantly improve the performance of business applications and other digital experiences like online gaming, videoconferencing, and self-driving cars.

In fact, 5G is not just an evolution from 4G. It is a giant leap forward. The fourth generation networks are built with large radio towers that transmit signals over long distances using lower frequency radio waves.

On the other hand, 5G networks will add many more small-cell antennas connected to buildings, streetlights, and other objects. These small cells will transmit massive amounts of data over short distances using an ultra-high-frequency spectrum.

Industry leaders and analysts feel the customers would be required to shell out more for the 5G services.

“Given the sizeable investments towards spectrum acquisition, we believe telcos will charge differential pricing for 5G services. Indeed, adoption of 5G services will hinge on the extent of premium over 4G tariffs,” said Manish Gupta, Senior Director, CRISIL Ratings.

In a bid to ensure mass adoption of 5G, telcos may raise tariffs for 4G services, too, despite the two rounds of major tariff hikes effected in December 2019 and November 2021, respectively.

“We expect another tariff hike for 4G services in the second half of the current fiscal. All the same, mass 5G rollout may happen only next fiscal as fiberisation (a pre-requisite for effective 5G deployment) is feeble now, and telcos are required to launch commercial services in at least one city of each circle by the end of the first year of acquiring the licence, as per rollout obligations. Thus, the full benefit of tariff hikes and 5G launch will be realised in fiscal 2024,” Gupta said.

Union Minister of Communications, Electronics and Information Technology Ashwini Vaishnaw has expressed hope that the 5G services would be launched in October this year.

Analysts feel that services would be first launched in major cities like Delhi, Mumbai, Chennai, Bengaluru, and Pune.

The spectrum auction of the 5G was completed on Monday. Total of 40 rounds of bidding were conducted in seven days of the auction that ended on Monday. The government had put 72,098 MHz spectrum to auction, of which 51,236 MHz (71 per cent of the total) has been sold with bids amounting to Rs 1,50,173 crore.

Four companies have acquired spectrums in this auction. These firms are – Reliance Jio Infocomm Limited, Bharti Airtel Limited, Vodafone Idea Limited, and Adani Data Networks Limited.

Elaborating on the reasons for the possible hike in tariff, Gupta said the telecom sector is characterised by high capital intensity as it requires continuous investments for technological upgradation and spectrum purchase.

Telcos have already invested nearly Rs 5 lakh crore over fiscals 2017-21 to roll out 4G services, resulting in the sector’s gargantuan debt (including lease liabilities) of Rs 4.73 lakh crore as on March 31, 2022.

Additional spectrum purchased in this auction could elevate the sector’s debt to Rs 6.1 lakh crore. Therefore, the sector’s debt/EBITDA is expected to rise to 4.6x in the current fiscal, compared with 4.2x as on March 31, 2022, he said.

The leverage ratio, however, should improve next fiscal, aided by full benefits of expected tariff hikes, 5G launch and customer uptrading, Gupta added.

Reliance Jio has made bids worth Rs 88,078 crore accounting for 58.65 per cent of the total value of Rs 1,50,173 crore received by the government in the 5G spectrum auction. Bharti Airtel has made bids worth Rs 43,084 crore to acquire 19867.8 MHz spectrum in 900 MHz, 1800 MHz, 2100MHz, 3300 MHz and 26 GHz frequency bands.

Vodafone Idea Limited has made bids worth Rs 18,799 crore to acquire 6,228 MHz spectrum in 1800 MHz, 2100 MHz, 2500 MHz, 3300 MHz and 26 GHz. Adani Data Networks Limited has made bids worth Rs 212 crore to acquire 400 MHz spectrum in 26 GHz frequency band.

According to brokerage firm Nomura, “700 MHz band could potentially give Jio an edge in terms of network quality, especially indoors.”

Nomura said 5G rollouts would likely be granular, starting with metros and larger cities. “There is a potential for telcos to charge a premium for 5G vs 4G,” the brokerage firm said.

“Despite the estimated weak leverage and elevated debt, cash-flow requirements of telcos would be supported by a moratorium of up to four years provided for adjusted gross revenue-related dues and favourable payment terms for the spectrum bought in the current auction,” said Rakshit Kachhal, Associate Director, CRISIL Ratings.

In contrast to the upfront payment requirement in the past auctions, this time telcos have an option to make payments in 20 equal annual installments, thereby aiding cash flows. Moreover, zero spectrum-usage charges on the spectrum acquired in this auction would be an additional (albeit not immediate) relief to telcos, as it would mean potential annual savings of at least Rs 3,000-5,000 crore over the medium to long term, Kachhal noted. (ANI)

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