High price of 5G airwaves in India, willingness of users to migrate from 2G/4G to 5G and the capital expenditure that telecom companies will incur to deploy full-scale commercial 5G network are some of the unknown variables that need to be addressed before successful implementation of the next-gen technology, India Ratings and Research (Ind-Ra) said.
“The reserve prices for 5G auctions are too high. Although the 5G auctions are not yet announced, the reserve price could yield a return on capital employed of only 7%,” the ratings firm said in a note on Wednesday after the government gave its nod on commencing 5G trials.
Secondly, the number of users willing to switch to 5G from 4G/ 2G and the incremental average revenue per user (ARPU) that they are willing to pay need to be watched out for.
“With the current ARPU ranging between INR121-166/user/month, and more than 350 million subscribers still using voice only/ 2G services with significantly lower ARPU, the viability of 5G for the telcos remains to be seen,” it said.
Although the financial credit profile of Reliance Jio Infocomm Limited (‘IND AAA’/Stable),
Limited (debt rated at ‘IND A1+’) is comfortable, the extent of capex these telcos will incur on 5G over the coming years will also be a key monitorable, Ind-Ra said.
The Department of Telecommunications on Tuesday gave nod to Indian telcos to commence 5G trials for six months using the mid band (3.2-3.67GHz), millimetre wave band (24.25-28.5GHz) and sub gigahertz band (700GHz) along with their existing spectra in the 800MHz, 900Mhz, 1,800MHz and 2,500MHz frequencies, during this trial phase.
“The move will also help determine the viability of this new technology across the nation, since the telcos are required to conduct trials not only in the urban areas but also in the rural and semi urban areas,” Ind-Ra said.
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