5G’s Multiple Conundrums

First, the good news. Last week, newly-appointed communications minister Ravi Shankar Prasad pushed the pedal on 5G and made two announcements: permission for the long-delayed trial runs by telcos will be given in 100 days; and, the much-anticipated sale of spectrum, which would include 5G spectrum, will be conducted this year.

But here’s the not-so-good news: Telecom operators, reeling under Rs 500,000 crore of debt are not all that enthusiastic about buying 5G spectrum principally on account of limited availability and unaffordable pricing.

“The total amount of spectrum available in the 3,300-3,500 band earmarked for 5G is only going to be 25 Mhz each for three operators, because defence and space together want 125 MHZ of this band,” said Rajan Matthew, secretary general of Cellular Operators Association of India. 5G services, he explained, requires at least 100 MHz for optimum speed and low latency. “So why should anyone buy spectrum in such limited quantity?”

This apart, the Telecom Regulatory Authority of India or Trai’s base price for spectrum is six times higher than the average global auctioned price for 5G spectrum in the band. “The government policy is contradictory, they want us to pay high commercial rates for spectrum, but use 5G for social services like powering health, traffic and waste management, smart cities and so on where margins for telcos will be very low. So where is the business case,” Matthew points out.

Operators will have to pay over Rs 50,000 crore to get all India 5G spectrum in this band, and they with infrastructure providers might have to invest $25-30 billion to build a pan Indian network, increase tower density and convert microwave backbone of towers with fibre. There are other bands such as 2,600-2,800 for which infrastructure to support 5G is proliferating, but it is not in Trai’s list for auction.

Vodafone-Idea has publicly stated that it wants auctions to be pushed beyond 2020, as they are busy rolling out 4G now after the merger. And Airtel has made it clear it will mainly be interested in picking up 4G spectrum and will look at 5G only if prices are reasonable.

Telcos say for most mobile customers 4G is enough for her needs, such as watching movies, downloading videos or gaming. The number of subscribers who want to see augmented and virtual reality content that will require 5G spectrum is very limited in India. Plus, 5G phones cost a whopper at $1,000 currently, which is likely to deter India’s innately cost-conscious customers.

At the same time, it is also true that 4G data quality is deteriorating with increased usage. A study by Ericsson points out that as much as 60 per cent of mobile consumers in India on smart phones in metros are facing congestion (in other cities, it is 50 per cent). With the huge data explosion, 60 per cent of the 4G spectrum has been used already. Surely getting substantial chunks of 5G spectrum with large bandwidths between 25 MHz and 100 MHz could ease the congestion. That apart, says Ericcson’s Thomas Noren, head of 5G commercialisation at Ericsson: “The other plus is that operating cost of delivering one gigabits of data in 5G is one tenth of that of 4G, a large cost advantage.”

There is another valid reason to use 5G: it could power enhanced mobile broadband at homes, where the last mile is wireless. That is much cheaper and faster to deploy than fibre-to-home broadband, a route Reliance Jio has taken with cumbersome delays in getting right-of-way to lay down fibre lines. Of course, the jury is still out as to which is a better route in the long term. But the domination of broadband at home is clearly the next big battle for which Jio and Airtel are readying.

5G, with its low latency, offers myriad of new opportunities for revenue generation, such as remote robotic surgery, scanning millions of faces in the airport for security, or enabling smart cities by helping to connect a millions of devices together in one go. But says a senior executive of a leading telco: “But it would take at least three to five years for these test cases, which we have displayed at exhibitions, to be commercialised and for telcos to make substantial revenues. So why should we sit on spectrum for so long?”

Matthew says that the focus of the auction for government might be 5G, but without a sharp decrease in price, the focus for telcos would be to grab more 4G spectrum (50-75 Mhz will be available) in order to augment their capacity in metros and cities to combat congestion. This means that the government could well face the spectre of unsold 5G spectrum. Until of course Reliance Jio which has kept in the background changes the dynamics.

However, if 5G prices are cut, some incumbent operators might roll out limited 5G services in key cities such as Mumbai and Delhi and offer a high-speed, no-congestion service at a premium. Or they could use the spectrum to launch limited enhanced mobile broadband services for customers in the larger cities where laying fibre in the last mile is a challenge.

All in all, the future of 5G in India will depend on how the government chooses to structure its first 5G spectrum sale.―Surajeet Das Gupta, Business Standard