In a move that can potentially derail Reliance Jio’s plans to launch 5G services in the second half of this year, Government of India has come up with a plan to auction only 4G spectrum in March this year.
The move to exclude 5G airwaves from the auction is likely to further delay the growth of high-speed internet in the country at a time when parents and children are struggling to log in to their online classes and work meetings.
5G IN WAITING
Jio Chairman Mukesh Ambani has repeatedly said his company is ready to deploy 5G services and called upon the government several times to auction 5G airwaves promptly.
However, according to the details published on Wednesday, the government is going to put up for sale only 4G spectrum as part of its first auction in four years.
The move has baffled industry veterans, who fully expected the government to conduct 5G spectrum auctions around the middle of this year.
Even though the government’s move is likely to hurt consumers and restrain economic growth, it is likely to offer some succor to Bharti Airtel and Vodafone Idea, neither of which are keen to buy 5G spectrum this year.
While Vodafone Idea has been financially crippled by a Supreme Court bench, Bharti Airtel too is not keen on increasing its debt and has publicly declared that the 5G ecosystem in India will not be ready for another 2-3 years.
However, for Reliance Jio, quick availability of 5G spectrum is an absolute must to retain its leadership position in the market.
This is because its existing 4G network has been pushed to the limits due to increased demand for high-speed internet following the COVID-19 pandemic.
Jio’s predicament is a reflection of the overall situation in the country.
India has been facing an acute shortage of internet connectivity in recent months as tens of millions of students have shifted to online classes, and a similar number of professionals have been forced to work from home to avoid the risk of COVID-19.
4G wireless speeds, which used to be in the range of 10-25 Mbps before COVID-19, have plummeted to 1-5 Mbps due to sudden increase in usage, despite more and more capacities being put online by all the three operators, Vodafone Idea, Airtel and Jio.
However, it is a greater problem for Reliance Jio because of its already highly stretched network.
The company already has around 8 lakh (800,000) 4G nodes across the country, nearly twice as many as its nearest competitor, Bharti Airtel.
While it can continue to increase capacity by putting up more and more towers, the fact is that most such new towers will quickly become superfluous when 5G is launched.
Even with the existing 8 lakh locations, a 5G launch would increase Jio’s wireless data capacity by 10-100 times, depending on whether the government offers only one 5G band or two bands. Therefore, expanding the current number of cell sites from 8 lakh to 10 or 12 lakhs will create needless financial and operational liability for the company post the introduction of 5G.
As such, Jio has slowed down its tower additions in the hope that the government will start selling 5G spectrum very soon. However, if the government continues to tarry on the issue of 5G, the company will find it difficult to maintain its quality of service and data speeds.
As such, a delay in 5G auction can benefit the other two companies, which continue to have enough headroom to expand their 4G network without creating liabilities for the future.
Airtel, which carries only half the traffic as Jio, can continue to support its existing growth rate for another 1.0-1.5 years by adding another 1.0-1.5 lakh 4G locations. Similarly, Vodafone Idea too can support higher and higher data consumption by activating more and more 4G sites on its network. When 5G is launched, all these 5 lakh sites can be optimally upgraded to the new technology.
CLEARANCE SALE?
One of the reasons that is being advanced by some for not including 5G spectrum in the March auction has to do with the amount of ‘unsold’ 4G spectrum lying with the government.
The government has about 125 MHz of 4G spectrum in each license area lying unsold from previous 4G auctions, worth an estimated Rs 3.92 lakh cr. It likely fears that if 5G spectrum is put on the block, there would be few takers for the unsold 4G spectrum.
However, the fact is that the majority of the unsold spectrum is in very high cost bands. For example, 60 out of the 125 MHz is in the extremely expensive 700 MHz band. Given the high prices demanded by the government, none of the operators are likely to touch this band.
Only 20 MHz out of the 125 MHz or so is in the 2.3 GHz capacity band, and this is likely to be snapped up by Airtel and Jio at 10 MHz each.
The other, more expensive bands are unlikely to see much interest in the March auction, as operators will be busy saving up money for the eventual 5G auction.
It is believe that 5G auction will require each operator to spend around Rs 50,000 cr.
Because of this, any attempt by the government to ‘clear out’ unsold 4G spectrum by delaying or deferring the 5G auction is likely to meet with limited success.
As such, some industry veterans believe that the government is likely to quickly follow up the March auction with a 5G auction around the month of September. Whatever 4G spectrum remains unsold in the March auction is likely to be included in the September auction, at substantially reduced prices, they believe.