The fifth generation of high-speed mobile internet, which promises superfast downloads to support technology ranging from virtual reality to driverless cars, lies at the heart of the Indian government’s plans to transform the country into a US$1 trillion digital economy. Prime Minister Narendra Modi this year said 5G services could become a “US$450 billion opportunity” in the next decade or so.
The complex auction process started on Tuesday, with observers saying it could drag on into next week. It had drawn bids of 1.49 trillion rupees (US$18.8 billion) as of Thursday evening, according to government officials, toward the higher end of analysts’ estimates before the process kicked off and marking a record for any kind of bandwidth auction in the nation.
Analysts at ICICI Securities said in a report that Jio, part of the sprawling Reliance conglomerate overseen by Asia’s richest man, Mukesh Ambani, had spent 843 billion rupees (US$10.6 billion) by the end of bidding on Wednesday, with key rival Airtel forking out 461 billion rupees. They said the third key player in India’s telecom market, Vodafone, had spent 184 billion rupees. Official results are not due until the sale closes.
That level of spending from Jio underscores its 5G ambitions, but the ICICI analysts sounded a note of caution. “In most geographies across the globe … higher spectrum investment has been seen to depress return on invested capital,” they wrote.
The government has put 72 gigahertz of spectrum on the block, with the goal of rolling out 5G in parts of India over the rest of this year. All bandwidth purchases are for 20 years.
That comes as Finnish telecommunications company Nokia estimates 5G services will more than double the average monthly data consumption in the country of around 1.4 billion people to about 40 gigabytes per person – higher than the US and China. Nokia predicts 5G services could fetch Indian telecom companies US$9 billion in revenues in 2026, about 14% of the global pie.
Millions of Indian smartphone users got a taste for cheap and fast internet services after Jio opened for business in 2016 with monthly plans priced as low as US$1. That has since doubled but remains one of the lowest globally, which is reflected in weak revenues per user for Indian telecom companies – Jio earned just around 168 rupees per user in the January-March quarter, Airtel 178 rupees and Vodafone 124 rupees.
Analysts say 5G is the next key battleground in Indian telecommunications. Jio, which counts technology giants Alphabet and Meta Platforms as investors, leads the overall sector, with a nearly 36% market share in May. Airtel, another Alphabet-backed firm, had a share of around 32%, with Vodafone trailing at about 23%.
“With the 5G rollouts, we think Airtel and Jio’s market share gains could likely accelerate further at Vodafone’s expense, and the Indian telecom market could end up as a virtual duopoly,” Nomura said in a June report.
Analysts at Jefferies earlier this month wrote that a competitive landscape is likely to hit “operators with stretched balance sheets more”.
“Structurally, a three-player market is better for sustainable pricing versus a two-player market,” they noted.
Meanwhile, billionaire Gautam Adani’s Adani Data Networks, a surprise entrant to the race, was estimated to have bid just 9 billion rupees for the 5G spectrum in the auction. The Adani group has dismissed speculation that it could be gearing up to enter the telecom sector, saying it needs the airwaves for company projects.
The government cut the cost of some airwaves by as much as 40% ahead of the auction to spur demand, on the recommendation of India’s telecom regulator. It also scrapped an upfront fee in favour of annual instalments over 20 years, along with the need for telecom operators to pay part of their turnover as a spectrum usage fee.
This follows last year’s relief package announced for the debt-laden telecom sector, which included a four-year moratorium on payments to the government for airwaves.
Ratings agency ICRA estimates debt at Indian telecom companies will shoot to 5.7 trillion rupees in the current financial year, ending in March 2023, from about 5 trillion rupees the previous year.