India plans 5G auction in June as market starts to stabilize

The Indian government plans to kick off its 5G auction in June, with the goal of seeing the first commercial 5G services in the country during 2020. And while the MNOs may still be suffering from debt mountains and the disruptive presence of new entrant Reliance Jio, there are strong signs that they are rising to the challenge of new competition now.

They are still complaining that they need a longer wait for the auction – to refill their coffers, after the high costs of serial 4G spectrum sales, and to get some return on that LTE investment. So far, only Jio and Bharti Airtel had signed up to take part in the auction, risking a damp squib for Indian 5G and for the treasury – though it is unlikely that Vodafone Idea would let all the spectrum go to its rivals for a song. India’s regulator, TRAI, proposes auctioning 20 MHz blocks in the 3.3-3.6 GHz band for 5G at a price of INR4.9bn ($69.1m) per MHz, and if there were only two bidders, the price would be unlikely to rise far above this reserve.

Away from the difficulties of affording yet another auction, and the tactics to persuade TRAI to set lower prices, the operators are, in other respects, preparing for a new dawn now that a wave of consolidation has taken place. The three remaining major-league MNOs – Bharti Airtel, Vodafone Idea and Jio – are all announcing major efforts to expand their networks and services, and prepare for 5G. Even BSNL, one of the troubled state-owned MNOs (along with MTNL) has hired Ciena to help prepare its network for 5G.

Vodafone, fresh from its acquisition of Idea Cellular, is now the largest of the big three, and has the scale to mount a stronger defense against Reliance Jio’s low cost offers and broad portfolio of digital services – not to mention its low-opex, modern network. However, Vodafone faces the challenge of integrating two major networks, corporations and user propositions – one reported reason it might stay away from the first 5G auctions, in order to concentrate on consolidation.

However, officially Vodafone says it will use the network consolidation process not just to rationalize its enlarged assets, but to steal a march on rivals in 5G readiness at the same time. It has awarded Ericsson the role of prime contractor for a complex process which will involve network integration and modernization to become 5G-ready.

The Swedish vendor – already a vendor to both Vodafone and Idea – will supply its Ericsson Radio System (ERS) RAN and transport equipment as well as systems integration and network optimization services. The ERS has been a strong revenue engine for the firm during a difficult few years, supporting LTE-Advanced today but with promised software upgradeability to the 5G New Radio, and many supporting capabilities such as Massive MIMO. Ericsson pursued a similar strategy in 4G, encouraging operators to invest early by offering network modernization – up-to-date, efficient kit for the current network and a smooth path to the next generation. Those deals come with lower margins than a full-scale rip-and-replace RAN sale, but start the revenues flowing earlier, and are an easier sell to cautious MNOs.

Vodafone Idea is also investing in a significant amount of microwave backhaul from Ericsson, to increase the capacity of current copper or wireless links and to support a denser grid of cell sites, where fiber is not readily available.

As part of the modernization program, Vodafone Idea also plans to consolidate its existing 2G and 3G networks to free up spectrum for LTE. This could help it stay away from the auction, although it would end up deploying in refarmed bands, whereas the first-stage ecosystem is emerging in the bands around 3.5 GHz.

The next step will be to optimize and fine-tune the modernized network to improve customer experience. This is important to all Indian MNOs, which have labored with inadequate spectrum and low ARPUs for years, though the consolidation means that the big three now have more airwaves at their disposal and the opportunity to deliver higher quality, higher value services. The push to improve quality of experience is particularly urgent for Vodafone Idea, which ended the fourth calendar quarter of 2018 with 35m fewer subscribers than in the third quarter, falling to a total of 387.2m. Revenues were down 2% year-on-year in the quarter, to about £1.27bn.

“We are progressing well on our stated strategy,” insisted CEO Balesh Sharma. “The initiatives taken during the quarter started showing encouraging trends by the end of the quarter. We are moving faster than expected on integration, specifically on the network front, and we are well on track to deliver our synergy targets. We remain focused on fortifying our position in key districts by expanding the coverage and capacity of our 4G network, and target a higher share of new 4G customers, while offering an enhanced network experience to our customers.”

Meanwhile, BSNL has announced its first 5G-related deal, awarded to optical supplier Ciena. The companies will work on trials in urban metro areas to see how Ciena’s  Converged Packet Optical, Packet Networking and Blue Planet Intelligent Automation platforms would support 5G transport. They will assess fronthaul, backhaul and midhaul use cases with particular focus on resiliency and latency requirements. BSNL claims it will start rolling out 5G next year.

BSNL has also launched FTTH services to compete with Reliance Jio’s new offerings in the fixed market as well as Airtel’s V-Fiber. It will offer a number of tariffs, ranging from 256Kbps to 100Mbps, starting at INR1.1 ($0.015) per GB.

But some analysts remain cautious about the prospects for the Indian market. A recent assessment by Fitch Rating’s Indian subsidiary said that, although prices would recover in the 2020 fiscal year, this would be insufficient to compensate for the revenue losses during the price wars of 2017 and 2018. “The EBITDA for the top two private telcos will improve but not to the extent that it would lead to any meaningful recovery in their standalone credit profiles,” said the report.

It believes that Reliance Jio will continue to take market share in subscribers and revenue from the big two and could eventually emerge as the market leader because of its cost-efficient infrastructure and digital platforms – highly modern foundations which allow it to undercut rival prices while still preserving margin, and to launch a wide range of digital services including connected car, home and enterprise applications.

It is also investing in fiber to improve its backhaul performance and offer fixed-line and multiplay subscriptions. It has launched the JioGigaFiber brand and acquired two existing broadband players, Den Networks and Hathway Cable and Datacom.

Bharti Airtel posted a profit of INR860m (US$12m) for its recent third quarter, ending in December 2018, but this was a big decline from the figure in the second fiscal quarter of 2016, when Reliance Jio launched – then, Airtel posted INR14.61bn ($205m). However, at least it is back in the black after 11 successive quarters of losses, and its ARPU was up from INR100 to INR104 ($1.40 to $1.45).

“Our simplified product portfolio and premium content partnerships have played out well during the quarter, translating into one of our highest ever 4G customers additions of 11m plus,” said Gopal Vittal, the managing director of Airtel’s Indian and South Asian business. “Our mobile data volume continues to expand, with a YoY [year-on-year] growth of 190%. We have deployed 24,000 broadband sites during the quarter.”

By contrast, Reliance Jio’s profit in the same quarter was up 65% year-on-year to INR8.31bn ($116.8m), though its ARPU was down from INR131.7 to INR130 ($1.84 to $1.82), suggesting that its customer additions are weighted towards Airtel’s and Vodafone’s lower value subscribers, attracted by Jio’s cut-price offers.