India’s 5G Plan Stirs Debt-Laden Telecom Firms

As fifth-generation internet services inch closer to reality, India’s indebted telecommunication companies are stepping up fund-raising efforts to take on Reliance Jio Infocomm, which has the advantage of cash and a later-generation network across the country.

Bharti Airtel, the country’s second-largest service provider by subscriber numbers, said late last week its board has approved a plan to raise up to $4.5 billion through a rights and bonds issue. The company is also looking to sell a stake in its tower business and list its African unit.

Rival and market leader Vodafone Idea, newly formed from a merger in the wake of the disruption unleashed by Jio, is raising $3.5 billion to upgrade its network.

Both have lobbied for a delay in the government’s auction of airwaves, a critical, but pricey, step in the rollout of 5G services nationwide. At the recent World Mobile Congress in Barcelona, Sunil Bharti Mittal, founder and chairman of Bharti, was quoted as saying that India’s prices for spectrum were “unacceptable.”

New Delhi was scheduled to auction spectrum in August. But that’s now been postponed to the last quarter of this year at the earliest at the request of some companies, a high-ranking telecom department official, who didn’t want to be identified, told NewsRise.

Many observers expect 5G services to be widely available in the country only in the early 2020s, with Deloitte estimating total investment required at $70 billion. The technology, which promises super-fast speeds and support for experiences such as robotic surgery and autonomous driving, will require new radio masts and towers. India also has a shortage of fiber-optic cable backhaul, necessary for speed.

Jio did not respond to an email about its 5G plans. However, Mukesh Ambani, Asia’s richest man and chairman of Jio’s parent Reliance Industries, has in the past said that the company’s network is “fully 5G-ready.” Media reports have also quoted some company officials as saying that Jio could launch services within six months of acquiring spectrum.

The company, which started operations in 2016, will require fewer resources, mostly in the form of software upgrades, to enable its internet protocol-based network for 5G, said Neil Shah, research director at Counterpoint Research.

Reliance Industries has so far invested 2.5 trillion rupees ($35.3 billion) to build Jio’s network infrastructure, Ambani told shareholders at the company’s annual general meeting in July.

As the first operator with a pan-India 4G Long-Term Evolution network, Jio bet big on content, overwhelming the competition with data tariffs so low that companies piled on debt as they tried to match its technology and rates.

A wave of consolidation followed, wiping out many companies, including Reliance Communications, headed by Anil, the younger Ambani brother. The Indian unit of Vodafone combined with Idea Cellular in August.

Late in 2015, Bharti announced a 600-billion-rupee three-year spending plan to upgrade its legacy 2G and 3G networks. The company had debt of $15 billion by December end.

In the two and a half years since it entered the industry, Jio has grown its share of the market’s total revenue to more than 29%. It aims to expand that to 50% by 2021.

Brokerage Ambit Capital said Jio has been losing market share to Bharti in urban areas where it doesn’t have enough towers and could be quick with the 5G roll out to fight back. Much of the initial demand for 5G services is expected to come from cities given the cost of smartphones.

Although Jio’s 280 million subscribers put it in third place, they are all on its 4G network and form a premium base of data users who can be persuaded to convert to 5G, said Shah.

By comparison, Bharti and Vodafone Idea have more than 70% of their subscriber base on 2G and 3G networks.

“If they switch off those networks, they can reuse the spectrum…to roll out 5G,” Shah said. Still, the upgrading would have to be done in phases and require considerable investment.

Bharti and Vodafone Idea did not respond to queries about their plans to counter competition.

Last month, Bharti teamed up with Nokia to conduct trials of the Finnish gear maker’s solutions that can support both 4G and 5G.

Both Indian companies have a tie-up with Swedish network equipment maker Ericsson. Last month, the Swedish company said it has started deploying 5G-ready equipment on Vodafone Idea’s network.―Nikkei Asian Review