How will 5G services affect the telecom business in India?
New Delhi With the successful auction of spectrum, India is inching closer to launching the fifth generation (5G) of telecom services. Consumers in cities like Delhi, Mumbai, Chennai, Bengaluru and Pune are likely to get 5G services from October.
How will 5G affect telecom services and business in India?
- Fifth generation cellular technology is about 20 times faster than its predecessor fourth generation (4G) technology. The theoretical peak speed of 5G technology is 20 gigabits per second (Gbps).
- The peak speed of 4G technology is 1 Gbps. Gbps is a measure of bandwidth over a digital data transmission medium such as optical fiber. It refers to the data transfer rate equivalent to one billion bits per second, or simple binary units.
- Obviously, the data uploading and downloading speed under 5G technology will be much faster than that of 4G technology. However, it’s not just speed that makes 5G better than fourth-generation technology.
- 5G comes with low latency, which will significantly improve the performance of business applications and other digital experiences such as online gaming, videoconferencing and self-driving cars.
- In fact, 5G is not just an evolution of 4G. This is a big leap. Fourth generation networks are built with large radio towers that transmit signals over long distances using low-frequency radio waves. On the other hand, 5G networks will add many more small-cell antennas attached to buildings, streetlights and other objects.
- These tiny cells will transmit vast amounts of data over short distances using ultra-high-frequency spectrum. Industry leaders and analysts believe that customers will need to spend more for 5G services.
- “Given the large investment towards spectrum acquisition, we believe that telcos will have different pricing for 5G services. In fact, the adoption of 5G services will depend on the extent of premium on 4G tariffs,” said Manish Gupta, Senior Director, CRISIL Ratings. The two rounds of major tariff hikes took effect in December 2019 and November 2021, respectively.
- We expect tariff hike for 4G services once again in the second half of the current financial year. Similarly, a large-scale 5G rollout can happen only in the next fiscal year as fiberization (a pre-requisite for effective 5G deployment) is now weak, and telcos need to have at least one city in each circle by the end of the first. There is a need to start commercial services. Year of obtaining license as per rollout obligations. Thus, the full benefits of tariff hike and 5G launch will accrue in the financial year 2024,” Gupta said.
5G Spectrum Bid: What We Know
A total of 40 rounds of bidding took place over the seven days of the auction that ended on Monday. The government had put up 72,098 MHz of spectrum for auction, of which 51,236 MHz (71 per cent of the total) has been sold with a bid of Rs 1,50,173 crore. Four companies have won spectrum in this auction.
These firms are – Reliance Jio Infocomm Limited, Bharti Airtel Limited, Vodafone Idea Limited and Adani Data Network Limited. Explaining the reasons for the possible hike in tariff, Gupta said that the telecom sector is characterized by high capital intensity as it requires continuous investment. For technical upgradation and spectrum purchase.
Telcos have already invested around Rs 5 lakh crore to roll out 4G services in the financial year 2017-21, resulting in huge debt (including lease liabilities) of Rs 4.73 lakh crore to the sector as on March 31, 2022. has gone. The additional spectrum bought in this auction may increase the sector’s debt to Rs 6.1 lakh crore. Hence, the debt/EBITDA of the sector is expected to increase to 4.6 times in the current financial year as against 4.2 times as on March 31, 2022.
Gupta said the leverage ratio, however, should improve in the next fiscal, aided by expected tariff hikes, 5G launch and full benefits of customer uptrading. Reliance Jio has placed a bid of Rs 88,078 crore, which is 58.65 per cent of the total value of Re 1. Government gets Rs 50,173 crore in 5G spectrum auction.
Bharti Airtel has made a bid of Rs 43,084 crore to acquire 19867.8 MHz spectrum in the 900 MHz, 1800 MHz, 2100 MHz, 3300 MHz and 26 GHz frequency bands. Vodafone Idea Limited has bid for Rs 18,799 crore to acquire 6,228 MHz spectrum in 1800 MHz. 2100 MHz, 2500 MHz, 3300 MHz and 26 GHz. Adani Data Network Limited has bid for Rs 212 crore to acquire 400 MHz spectrum in the 26 GHz frequency band.
According to brokerage firm Nomura, “the 700 MHz band could potentially give Jio an edge in terms of network quality, especially indoors.” Nomura said 5G rollouts will likely be grainy, starting with metros and larger cities. “The telco is likely to charge a premium for 5G versus 4G,” the brokerage firm said.
“Despite projected weak leverage and higher debt, the cash-flow requirements of telcos will be supported by a moratorium of up to four years provided for adjusted gross revenue-related dues and favorable payment terms for spectrum purchased in the current auction ,” What was said. Rakshit Kachal, Associate Director, CRISIL Ratings.
Unlike the upfront payment requirement in the previous auctions, this time telcos have the option to pay in 20 equal annual installments, which helps in cash flow. In addition, zero spectrum-usage charges on spectrum received in this auction will be an additional (albeit not immediate) relief for telcos, as it would mean potential annual savings of at least Rs 3,000-5,000 crore in the medium to long term.