Investing Big in 5G: Reliance Jio and Airtel’s Uncertain Path to Revenue

India is currently in the midst of a major push to roll out 5G networks across the country; at the same time, private players Bharti Airtel, Vodafone Idea and Reliance Jio are also investing heavily in 5G infrastructure, with much of their financial resources being allocated towards the smooth rollout of 5G services. These companies are working to build out their 5G networks in cities across the country, hoping to be among the first to launch 5G services in India.

However, the telecom giants may have hit a roadblock in their plans and have put forth an appeal to the government calling out for reduced levies, saying the sector is in need of more financial relaxation and support for viability and sustenance.

The same has been put forth through the Cellular Operators Association of India; the industry wants the licence fees reduced from 3% to 1%, and it is also seeking a 5% deferral of the universal service obligation levy until funds worth INR64,774 crore are exhausted.
The telecom industry is forecasted to have closed FY2023 with around INR6.3 lakh crore of debt or roughly $85bn.

Fastest 5G Rollout But Road Block Ahead
In spite of the challenges posed by the COVID-19 pandemic and the ongoing economic slowdown, the 5G rollout in India is proceeding apace.

Reliance Jio and Airtel are two of the largest telecom players in India, and both companies are investing heavily in the rollout of 5G networks in the country. While these investments are aimed at providing faster and more reliable data services to consumers, there is a significant risk that the companies may not see additional revenue from these next-generation services.

One of the main challenges facing telecom companies in the 5G era is the fact that there are currently no clear use cases or revenue models for these new services. While there is a lot of hype surrounding 5G, it is still unclear how these networks will be monetized.

This investment is aimed at providing faster speeds and lower latency for data services, which should lead to better user experiences and increased data consumption.

There is no guarantee, however, that consumers will be willing to pay more for these faster speeds or that there will be new revenue streams from the 5G services. In fact, many consumers may be content with the speeds they currently receive and may not see the need to upgrade to 5G services.

Another challenge facing Reliance Jio and Airtel is the fact that the Indian market is highly competitive, with several players competing for market share. This means that there may be downward pressure on prices, which could impact the profitability of 5G services.

Hoping For Financial Relief Via Govt Intervention
India’s top telcos, Reliance Jio, Bharti Airtel and Vodafone Idea, have called on the government to sharply reduce levies, reasoning that they are investing top dollars for the fastest 5G rollout seen anywhere in the world but have no clear visibility in terms of additional revenue from the next-gen services.

According to SP Kochhar, COAI director general, while 5G is being deployed rapidly across the country, however, the revenues can be gained from the same only once the market matures, customer use cases are established as well as the enterprise uptake of the services is realized.

He further states that even though the debt-laden telecom sector has put in massive investments and efforts so that India gets the world’s fastest 5G rollout, it also requires more financial relaxation and support for viability and sustenance COAI has written to the government on these issues.

Rapid Rollout Of 5G
Reliance Jio and Bharti Airtel are presently rapidly rolling out 5G services and have already covered over 400 and 500 cities and towns each, respectively.
Jio spent the most in last year’s 5G spectrum auction, buying airwaves worth ₹88,078 crores, while Airtel bought spectrum worth ₹43,084 crores. However, Vodafone Idea, which acquired 5G airwaves for ₹18,799 crores, has not yet announced 5G rollout plans.

A report by ICICI Securities expects Jio and Airtel to spend approximately ₹94,000 crores and ₹66,600 crores for 5G coverage in the next five financial years, respectively.

Emerging markets TMT leader at EY, Prashant Singhal, says there is a pressing need to justify the levies vis a vie the investments needed in the sector for 5G rollout, which include fiber rollouts and home broadband.

He added that the Indian telecom sector is among the highest-taxed globally. Current regulatory levies and taxes are roughly 30% of the revenues. And after adding income tax, they account for 35% to 38% of the revenue.

He further explains that the telecom licence fee is negligible in most countries, or a one-time upfront payment is required, and the accumulation of GST credits has also added to the working capital woes of the operators.

Industry executives also say there is a lack of monetization opportunities and use cases for 5G, with telcos choosing not to set higher tariffs for the next-gen services.

Gopal Vittal, Bharti Airtel’s managing director (India and South Asia), had also recently said that most 5G use cases still needed to be commercially relevant. Another point to be factored in is that competitive pressures are preventing tariffs from rising.

During the ETTelecom 5G Congress 2023, Vittal said that a bank gives 7-8% return on capital today, and in the telecom industry, it is less than 8%. And hence the company would much rather put the money into a bank deposit and have the same return without taking all this risk. Consequently, the financial viability of the industry needs to improve.

In Conclusion: Ultimately, the success of Reliance Jio and Airtel’s 5G investments will depend on a number of factors, including consumer adoption, pricing, and the development of new use cases and revenue models. While the future is uncertain, both companies are betting big on 5G, with the hope that it will pay off in the long run.