With spectrum auctions in the pipeline – likely in the coming months – India’s telecom operators are bidding regulators ahead of time to keep 5G prices down so that more can be rightfully directed toward expanding services to deploy faster and higher quality networks across more cities.
This month, the Telecom Regulatory Authority of India (TRAI) recommended a 36% reduction for the floor price of 3.3 – 3.67 GHz spectrum sale and a 40% cut for 700 MHz spectrum. However, the Cellular Operators’ Association of India (COAI) argued against this recommendation, citing a 90% price reduction instead. In a parliamentary panel, the COAI requested the Department of Telecommunications (DoT) to “come out with a convincing spectrum pricing policy that is sustainable, affordable and acceptable to all”.
Currently, India has one of the most expensive spectrum prices in the world. When prices are too high, operators will likely invest lesser in networks, which will impact the quality and reach of mobile services. Poised to become the third-largest economy in the world by 2030, as predicted by the Centre for Economics and Business Research (CEBR), India grapples with stiff competition and unfavorable conditions in the telecom market, which has already forced many debt-riddled operators out in recent years. Currently, millions in the country are still using 2G. Continued high spectrum costs, especially for 5G, will become a major threat to healthy mobile broadband growth.
According to the India Brand Equity Foundation (IBEF), India’s total mobile subscribers reached close to 1.2 billion in December 2021. India’s overall wireless Internet data usage grew sevenfold to reach more than 32,000 petabytes in 2021, compared to 4,200 petabytes in 2018. Its population is also one of the biggest consumers of data worldwide, averaging 11 GB of wireless data usage per subscriber per month in 2020.
Despite setbacks along the way, the market promises huge potential. Recently, Alphabet Inc announced that it will be investing about $1 billion to tap into India’s burgeoning market, of which $700 million will be channeled to purchase a 1.28% stake in Bharti Airtel. The remaining $300 million will be part of a corpus to develop network and cloud technologies in India and South Asia.
Made in India
If everything goes according to plan, 5G will be deployed in about 13 cities first. These cities include Delhi, Mumbai, Chennai and Bangalore. By 2026, the IBEF predicts that India’s 5G subscribers will reach 350 million to account for 27% of all mobile subscriptions in the country.
The dawn of 5G is a much-welcomed move as part of India’s prime minister Narendra Modi’s flagship “Digital India” program, aimed to transform the country into a digitally-empowered society and knowledge economy. To raise the country’s digital status, for instance, the DoT was allocated $11.11 billion in the Union Budget 2022-23.
An important driver of the economy and an enabler for the “Digital India” program, the telecom sector also received some relief last year when the government announced reforms including redefining adjusted gross revenue (AGR) to include revenues earned only from telecom services.
To facilitate future 5G rollout, India’s DoT also seeks to amend existing right of way (RoW) rules and regulations to simplify the process for operators to lay fiber and deploy base stations and small cells. These changes will streamline processes to obtain permissions and approvals to establish needed 5G infrastructure.
When the government announced a Production Linked Incentive (PLI) scheme in March 2020, for sectors including telecom and networking manufacturing in India, global brands including Apple and Samsung shifted a portion of their global production to India. With India’s telecom industry being heavily dependent on foreign equipment vendors, this scheme offers companies incentives on incremental sales over the base year. More than $447 million have been approved under the scheme to be invested in manufacturing telecom and networking products in India as a result.
While this greatly boosts the production of domestic telecom equipment, operators have recently called on the government to provide incentives for procuring domestic equipment, at the same time, not imposing a fine when equipment is purchased from foreign sources. To incentivize operators for procuring home-manufactured equipment, the Telecom Equipment Makers Association (TEMA) is looking to implement an incentive mechanism where operators procuring more than 10% of market access requirement of telecom equipment receive up to 10% rebate of its license fee for the year. Similarly, operators that procure more than 20% of equipment requirements, receive a 20% rebate off license fees. On the other hand, operators that fail to meet market access criteria will have to part with 10% of the shortfall value.
While the road to 5G is still fraught with uncertainties, change is clearly underway to create a more robust telecom climate in India.
