Big push for 5G as govt plans for spectrum auction this year

Telecom users will get access to 5G services by early next year as the government will auction 5G spectrum this year. Finance Minister Nirmala Sitharaman also announced on Tuesday that a 5G design-led manufacturing scheme will also be brought under the fold of Production Linked Incentive Scheme, to bolster the 5G ecosystem.

The Finance Minister noted that the government is committed to facilitate rollout of 5G services within 2022-23, through timely auction, thus inducting India finally into the global 5G race. 

This comes after the government’s September 2021 telecom reforms package, which injected the much needed liquidity into the ailing telecom sector. According to experts, two of the top three telcos — Bharti Airtel and Reliance Jio — will now have the funds to participate. According to Isha Chaudhary, Director, CRISIL Research, “Multiple tariff hikes, various reforms in the sector along with moratorium on AGR dues as well as spectrum payments, which is likely to lead to increased cash flows to the tune of ₹30,000 crore to the industry in fiscal 2023.”

Chaudhary added that the two players are likely to see their mobile business operating profit rise by 40 per cent to ₹90,000 crore in fiscal 2023 putting them in a comfortable position to participate in the auctions. Additionally, these players have also seen significant fund infusion in the past two years and have already returned a major part of their cost liabilities for spectrum acquired in earlier auctions, helping them not only reduce interest cost, but also open up capital markets for further infusion at lower interest rates, if required.

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Vodafone Idea, which is still struggling to raise adequate funds, is likely out of the mix.

Competition heats up

While Jio is better placed in the bidding process, after clearing all its spectrum dues, according to Sanjay Kapoor, ex CEO Airtel, the competition between the two telcos is going to be neck and neck, “The jury is still out on who will eventually win the 5G race. While Jio enjoys infrastructural advantages with better tower fiberisation, Airtel has a better quality postpaid customer base. On the balance sheet side, while Jio is debt-free, Airtel isn’t going to see issues fundraising to participate in the 5G auctions. The main challenge for both telcos is essentially going to be regarding how they develop use cases to monetise 5G investments, in a low ARPU market.”

According to the Receipt Budget 2022-23, the government is expecting to earn ₹52,806 crore from the telecom industry. Experts believe that the 5G auction itself will fetch revenue upwards of ₹1 lakh crore, which will be paid in instalments. 

Design-led scheme

Regarding the design-led 5G manufacturing scheme, inducted under PLI, Ankit Agarwal, Managing Director, STL noted, “it sets the foundation for India’s 5G readiness through spectrum auctions, R&D impetus, USOF allocation along with a boost for domestic manufacturing through a timely ‘Design-led manufacturing’ scheme.”

However, the telecom sector has been asking for an overall reduction in taxes and levies which has not come through. KG Purushothaman, Partner and Telecom Sector Leader, KPMG in India, said “Budget 2022 has set the tone of optimism for the telecom sector. While some of the industry demands on reducing the government levies remains to be addressed, the commitment of the government towards launch of 5G by FY23, new PLI schemes to promote manufacturing of 5G equipment and strengthening of digital infrastructure will boost the momentum in the sector.”

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