How will 5G auction effect telcos and industry 4.0?

India came one step closer to rolling out 5G service on Wednesday, as the government announced the schedule for the auction of spectrum. The Digital Communications Commission (DCC) had approved the 5G spectrum auction according to Telecom Regulatory Authority of India's recommendations on May 17th this year. The proposal was sent to the Union Cabinet then.
 

In its meeting on Tuesday, the Cabinet approved the Department of Telecom’s proposal for the auction of 72 GHz of spectrum for a 20-year period. And to the shock of telecom operators, it has allowed the development and setting up of private captive networks with the aim of ushering in a wave of innovations in Industry 4.0 applications. It is said that the 5G speed will be ten time faster than its predecessor.  

The department of telecom has notified that the auction of 5G airwaves will begin on 26th July. The government said that the payments for spectrum can be made in 20 equal annual installments, which will be paid in advance at the beginning of each year. The government said that it is expected to significantly ease cash flow requirements and lower the cost of doing business in the sector. The bidders will also be given the option to surrender the spectrum after 10 years with no future liabilities with respect to balance installments.
 

In what appears to be a setback for telcos, the Notice Inviting Application, or NIA, issued on Wednesday showed that the Cabinet has left the reserve price of 5G airwaves unchanged. In May, the Digital Communications Commission had approved the auction of 5G airwaves. Mobile service providers had asked for a 90 per cent cut in the base price.  However, accepting the suggestion of the Telecom Regulatory Authority of India, it only recommended a 36 per cent reduction.

However, there was one piece of good news for telcos. Prashant Singhal, the EY Global TMT Emerging Markets Leader, said that one of the key highlights of the 2022 spectrum auction NIA was abolishing the spectrum usage charges, or SUC, for this auction.
 

Singhal explained that at present, the SUC paid by operators varied between 3-5 per cent of the Adjusted Gross Revenue depending on the year of acquisition. Thus, according to him, the zero per cent SUC would be a welcome relief to operators and enable a faster 5G rollout.

Another setback for the telcos was the government move to allow private network. Leading up to the Cabinet nod, telcos had opposed any move to set aside spectrum for captive private networks at an administered price. On the other side of the fence were the likes of the Tatas, ITC and the Broadband India Forum, which had argued that assigning spectrum directly to enterprises was the only way to enable Industry 4.0.    

The Cellular Operators Association of India, or COAI for short, had recently sent a letter to Communications Minister Ashwini Vaishnaw. The letter said that there would be "no business case for rollout of 5G networks” by telcos if captive private 5G networks were to be permitted. COAI is the apex body of telecom operators with Reliance Jio, Bharti Airtel, and Vodafone Idea as its key members.

The COAI letter also said that in regions where 5G had been rolled out, there had hardly been any gains in revenue from the retail segment. Instead, revenue and efficiency enhancement could only happen in the enterprise segment. Telcos have argued that based on global trends, 40 per cent of the revenues from 5G come from the enterprise segment.

On Wednesday, the Broadband India Forum hailed the Cabinet's decision to enable private 5G networks as a step that would give a boost to Digital India. It noted that all the four methods of allocating spectrum for private 5G networks as recommended by TRAI, including the option of enterprises obtaining spectrum directly from the DoT, have been permitted.

Thus, the Forum said that enterprises would be able to develop private 5G networks for specialised captive use and march towards Industry 4.0. It added that private networks would further provide an additional source of revenue for the government through the license fees and administrative costs paid for the spectrum allocated to them. 

On the balance of things, it appears that telcos lost out on some key demands. However, they were also provided some measure of relief. This leaves us with one key question. Will the telcos reassess their previous stand that captive private networks would do away with their business-case for 5G?