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Telecom tariff wars to hurt 5G launch in India

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The battered financial health of India’s telecom sector, which is a result of intense tariff war that has been waging since 2016, will continue to impact the ability of operators to acquire new spectrum and the subsequent launch of 5G (fifth generation) wireless service in the country.

Spectrum allocation will be key to the rollout of 5G in the country, where the cost of radio airwaves is expensive compared to other countries, the Competition Commission of India (CCI) said in its report on the market study of the telecom sector released on Friday.

Reliance Jio Infocomm Ltd’s entry into India’s telecom market in September 2016 and almost-free voice and data offers caused massive disruption, forcing other players to cut prices and to operate at unsustainable levels in 2017-18 and 2018-19.

Bharti Airtel Ltd and Vodafone Idea Ltd’s average revenue per user (Arpu) fell to as low as Rs101 and Rs92, respectively, in the first half of fiscal year 2019, while Jio’s Arpu was Rs132 as it gained market share, according to the Cellular Operators Association of India. The Mukesh Ambani-led company is India’s largest operator by market share.

“The tariff war that began in 2016 has eroded the sector of its financial stability… With the average spectrum holding for an Indian operator lower (31MHz) than the global average of 50MHz, the battered financial health will continue to impact the ability of operators to acquire new spectrum and the subsequent launch of 5G in India,” CCI said.

The anti-trust body said India’s telecom experience suggests that the quantum of spectrum will also determine the quality of 5G services, that is scarcity increases costs and makes operations inefficient. It said the availability of technology for 5G and other communications is not a concern for telcos as it is globally coordinated and developed.

However, creating a competitive market for 5G by ensuring allocation of spectrum at a reasonable cost, which will balance revenue generation and industry viability, is crucial, CCI said. The financial health of the sector could lead to uneven adoption of 5G, it said.

“The current financial health of the sector could result in an uneven speed of adoption of 5G by operators. The more profitable ones are likely to be faster off the block. In case this scenario unfolds, it will have implications for the level of competition in the long run,” it said.

Reliance Jio, the only profitable telco in India, plans to launch 5G services in the second half of this year with its home-grown solution, while Airtel and Vodafone Idea are of the view that the country’s ecosystem is underdeveloped and spectrum unaffordable.

The telecom department will conduct a spectrum auction in March. It has put up for sale 2,251MHz of spectrum at a reserve price of Rs3.92 trillion. Spectrum in the 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz bands have been put on the block, while the 3,300-3,600 bands, which were suggested by the telecom regulator for 5G, are not included in the upcoming sale.

The next spectrum auction could be a repeat of the October 2016 sale, when large chunks of airwaves were unsold because of high reserve prices, according to analysts. Spectrum in the 700MHz and 900MHz bands did not find any takers in the last auction.

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