Mukesh Ambani calls for policy measures to scrap 2G services
Urges benefit of using 4G services for Direct Benefit Transfers
Telcos are taking measured steps to introduce affordable smartphones
Mukesh Ambani, chairman of oil-to-telecom conglomerate Reliance Industries Ltd (RIL), on Tuesday used the platform of Indian Mobile Congress to attack competitors where it hurts most. In the presence of Prime Minister Narendra Modi, India’s richest person urged the government to phase out the 2G services at the earliest.
Interestingly, Reliance Jio, which is part of RIL, is the only telecom operator in India which does not have legacy 2G/3G networks and corresponding subscriber base. An early phase out of 2G services will hurt companies like Airtel and VI (Vodafone Idea) with their 45% and 60% subscribers using 2G services respectively.
In his speech that lasted eight minutes Ambani said, “As many as 300 Mn mobile subscribers in India are still trapped in the 2G era. Urgent policy steps are needed to ensure that these underprivileged people have an affordable smartphone, so that they too can benefit from Direct Benefit Transfer (DBT) into their bank accounts, and actively participate in the Digital Economy.”
The Indian 2G subscriber base is led largely by Bharti Airtel and VI and a small base of BSNL users.
Ambani also announced Jio’s plans to roll out 5G services by the second half of 2021.
High bandwidth and low latency network connectivity offered by 5G can help the startup ecosystem accelerate the rollout of IoT based solutions rapidly apart from expanding the use cases available for the larger internet and app-based ecosystem. Tech companies are exploring solutions across communications, agritech, surveillance, civic services and education among others which will benefit from access to 5G communication services.
On the other hand, Sunil Bharti Mittal, chairman of Airtel, speaking in the same event suggested that India was not ready for the roll-out of 5G services immediately.
“I think India, to my mind, in two or three years’ time will be ready to receive the benefit of the investment that the globe would have made onto the 5G standard and 5G ecosystem,” said Mittal.
Making his position clear, Mittal reiterated that 5G spectrum prices were unsustainable for telcos to invest in while at the same time, the technology ecosystem for 5G also remained underdeveloped in the country.
Both VI and Bharti Airtel have repeatedly called out that the reserve price for the 3.5 Ghz spectrum, needed for 5G is too high. Telecom Regulatory Authority of India (TRAI) has recommended a price of INR 492 Cr per MHz for this spectrum range.
Both Airtel and Vodafone Idea have been struggling financially since the launch of Jio’s telecom services in the country. Jio had launched its 4G services in 2016 with a big bang, making voice calls free – a disruptive move that was opposed by its rivals.
While Jio became the number one telecom player in November 2019 with a subscriber base of 369.93 Mn, as against Airtel’s 327 million and Vodafone’s 336 Mn at that time. The financials of Airtel, as well as Vodafone Idea, have been under stress due to the ongoing price-war that has undercut the bottom line of incumbent players, although there have been concrete signs of revenue recovery in Q2 FY21.
One of the stumbling blocks for the telcos has been the massive debts, worsened by adjusted gross revenue claims raised by the government.
VI has reported net debt of INR 1145 Bn, while Bharti Airtel reported net debt of INR 1074 Bn in Q2 FY21 respectively, making it prohibitive for the telcos to invest in the 5G spectrum before their balance sheets show positive recovery signs.
The management of Vodafone Idea and Airtel have repeatedly pointed out that while they are taking measures to upgrade users to smartphones through various financial services initiatives and partnerships, they are in no hurry to shut the 2G service down completely.
However, the prohibitive cost of good quality smartphones in the sub-INR 5000 category has been a deterrent in upgrades to smartphones.
The telcos are trying to upgrade their 2G users to 4G for the sake of better revenues. Both have been focusing on upgrading their 2G customer base to quality 4G users amid heightened competition from Reliance Jio, which only offers 100% 4G services. Around 60% of Airtel’s customer base is on 4G network, while for Vodafone Idea it is 50%.
According to a report by CLSA a brokerage firm, India’s smartphone user base will expand from 403 Mn in FY20 to 590 Mn by FY23, driven by a pick-up in smartphone migration from feature phones. CLSA believes Bharti Airtel is best placed to play the sector’s rising smartphone penetration.
Vodafone Idea is seeking upgrades to 4G through financial partnerships with NBFCs. Reliance Jio has announced plans for an entry-level 4G-enabled smartphone developed with Google Inc. Bharti Airtel has launched a premium plan, Platinum, to attract high-paying 4G customers and is reportedly in talks with some manufacturers to launch low-cost smartphones in the country.
Each of the telcos is independently exploring solutions to lock SIM cards with devices and within a certain geographical range so that they can enable tracking and timely payment for the smartphone devices, through EMIs if required. According to the global industry body for mobile operators, GSMA, 12-13% users will continue to use 2G handsets till 2025 in India.