India is gearing up for the next big thing in telecommunications – 5G, or the fifth generation of network standards for cellular broadband networks. What can we expect regarding levies, industry capital expenditures, and the impact of 5G on average revenue per user (ARPU) based on global experience? We’ll take a look.
Expect a slower update
5G adoption has been slower than that of 4G (Long Term Evolution, or LTE), according to an analysis by UBS, which looked at 5G rollout in China, Korea, Thailand and America du Nord, and compared the adoption of 4G and 5G at launch. According to the analysis, 5G adoption has been smooth in Korea and China – both countries are approaching 40-42% penetration 2-3 years after launch.
The main reason for this is the lack of differentiated use cases between 5G and 4G – there’s no killer app or immediate “I need 5G” scenario.
For example, 4G adoption has exploded due to movie streaming and the proliferation of services like Netflix or games, which was not possible with 3G. But there isn’t an app or service that requires 5G to work that can’t be done on 4G. That said, 5G has the ability to create new use cases, such as the Internet of Things, connected cars, automated factory settings, and other enterprise use cases. Admittedly, new uses will evolve, but they have not yet taken off in other advanced markets, which explains the low penetration.
UBS indicates in its study that in most markets with more than 10% 5G penetration, usage is centered on the same applications used for 4G, while consuming more data.
ARPU and capex requirements
UBS says 5G ARPUs have a 10-15% premium. Additionally, 5G opens up new revenue opportunities, the most significant being the fixed wireless segment, especially given the low home broadband penetration in India.
Also on investment, UBS data shows that 5G rollouts have led to a modest increase in higher investment of 300 to 500 basis points on sales as carriers take a phased approach.
The clash around 5G captivates
Recently, 5G has been in the news for all the wrong reasons after telecom service providers wrote a letter to the government, asking them not to allocate 5G spectrum to private players setting up captive networks at the use of individual companies, which will end up diluting the telecom operators. ‘ and diminish the commercial attractiveness of offering 5G services. They said enterprise revenue could account for around 40% of 5G service revenue.
Currently, companies can build private networks by applying for a Non-Public Captive Network License (CNPN) and can obtain frequencies allocated directly by the government for a period of 10 years. The only criteria being that beneficiaries must have a minimum net worth of Rs 100 crore and must pay a non-refundable application fee of Rs 50,000; they do not have to pay entry or license fees.
CNPN is cheaper, hence the outcry. A CNPN licensee is not allowed to offer commercial services, while spectrum acquired through auctions is expensive because it is eligible for commercial services.
However, the timeline for this is uncertain. The Department of Telecommunications will conduct demand studies and then seek recommendations from the telecommunications regulator. According to reports, this process could take 1-2 years.
The Cellular Operators Association of India (COAI) opposed it, calling it a backdoor entry allowing big tech companies to get into the 5G business.
“Spectrum should not be provided on an administrative basis as it does not lead to any business case for the deployment of 5G networks in the country…there will no longer be a viable business case for telecom service providers and there will no longer be any need for 5G deployment by TSPs,” reads a statement from COAI.
First post: STI