Industry Undercurrents0The dawn of the era of 5G in India

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While many businesses have been hurt by the fallout from COVID-19 pandemic, the telecom industry has helped keep the world’s economic engine ticking.

In the ‘new normal’ that the COVID-19 pandemic is shaping, businesses across the world are in the middle of a major digital transformation, and connectivity has become critical in terms of providing collaboration opportunities while boosting organisational resilience. The future value of telecom, beyond being an enabler of connectivity, lies in providing value services and customised experiences.

5G technology will usher in a much greater revolution than itself. At the base level, it will significantly increase the capacity and reach of existing mobile networks through greater data throughput and ultra low latency. In a larger sense, 5G will become the backbone of many fourth industrial revolution (IR4) technologies like Artificial intelligence, augmented reality/virtual reality, drones, internet of things, telemedicine, and autonomous vehicles. Many kinds of devices, billions in number, will be connected to each other through 5G and offer the kind of capabilities and user experience never seen before. Our businesses and lives will change forever.

In tandem with the onset of 5G technologies, the size of the telecom equipment sector is expected to have grown to US$26.38 billion by 2020, bolstered in part by the growth of internet subscribers in the country to 829 million by 2021. The overall internet traffic could grow four-fold by 2021, at a 30% CAGR. The MobileValue-Added Services (MVAS) industry is projected to grow to US$23.8 Billion by the end of 2020 at a CAGR of 18.3%.5 In addition, the National Digital Communications Policy, 2018 envisages attracting investments worth US$100 billion in the telecommunications sector by 2022.

Regulatory Agencies

The Department of Telecommunications

As per the Allocation of Business Rules, 1961, the DoT exercises the powers of the licensing and regulatory authority for telecom in India. Some of its important functions are: a) licensing and regulation; b) international cooperation in matters connected with telecommunications (such as International Telecommunication Union (ITU), International Telecommunication Satellite Organization (INTELSAT), etc; c) promotion of private investment in the Indian telecommunications sector; d) promotion of standardization, research and development in telecommunications.

The Telecom Regulatory Authority of India

TRAI acts as an independent regulator of the telecommunications industry in the country established under the TRAI Act. One of the main objectives of TRAI is to provide a fair and transparent policy environment to promote a level playing field and facilitate fair competition amongst various telecom players. TRAI’s powers are recommendatory, mandatory, regulatory and judicial. The important recommendatory powers of TRAI include: a) the need and timing for introduction of new service providers; b) grant of telecom licenses including their terms and conditions; c) revocation of license for noncompliance of terms and conditions of license. The recommendatory powers of TRAI must be viewed in light of the policy making powers of DoT. While the DoT is the sole authority for licensing of all telecommunications services in India, it is mandatory for the DoT to seek TRAI’s recommendations before making decisions with respect to the matters over which TRAI has recommendatory jurisdiction. Once it has received TRAI’s recommendations, the DoT may either accept or reject the recommendations. TRAI is also the sole authority to a) fix tariffs for telecommunication services; b) setting out terms of interconnection between telecom providers and standards of quality of service for TSPs. It has been proposed that TRAI’s name will be changed to Digital Communications Regulatory Authority of India but the same has not been implemented yet.

Ministry of Electronics & Information Technology (“MEITY”)

MEITY is responsible for “policy matters relating to information technology; Electronics; and Internet (all matters other than licensing of Internet Service Provider)”, “administration of the Information Technology Act, 2000 and other IT related laws”, and the “Unique Identification Authority of India”. Some matters, including privacy, relating to applications over the internet fall within the bounds of MEITY’s jurisdiction.On the other hand, DoT imposes privacy obligations on TSPs through the Unified License.

Spectrum Allocation Process

Spectrum is allocated in India based on the National Frequency Allocation Plan, which itself is based on the international frequency table issued by the International Telecommunications Union. A wing of the DoT, the Standing Advisory Committee on Frequency Allocation (“SACFA”), gives approval for radio frequency (spectrum) used by TSPs. In addition to obtaining a telecom license, a no objection certification from SACFA is required to begin rolling out services. The certificate is granted on the basis of a detailed technical evaluation including field studies to determine possible aviation hazards and interference ( Electro Magnetic Interference (“EMI”)/Electro Magnetic Compatibility (“EMC”)) to existing and proposed networks

In order to ensure optimal deployment of 5G, adequate spectrum availability is imperative. The DoT had constituted a High Level Forum (“HLF”) in 2017 to make recommendations to steer India towards deployment of 5G networks. The HLF recognized two crucial issues with spectrum allocation in India: 

(a) the limited licensed mobile spectrum available in India, i.e. 220 Mhz, compared to other countries; and 

(b) the cost of spectrum, relative to per capita GDP, which is much higher than other countries. The HLF recommended that 5G spectrum be released in three tiers:

  • 8-803 MHz, 3300-3600 MHz, 24.25- 27.5 GHz, and 27.5 – 29.5 GHz) are recommended to be declared as available for 5G networks in order to provide certainty to the ecosystem.
  • Identify Tier – certain bands (617-698 MHz, 1427-1518 MHz, 29.5 to 31.3 GHz and 37.0 to 43.5 GHz) are recommended to be designated for potential 5G use, which may be announced after consultation with other domestic users.
  • Study Tier – certain bands (3600-3700 MHz) are recommended to be designated for exploratory studies for 5G use.

Transitioning from 4G to 5G will involve two major costs: 1) purchasing license for new frequencies, 2) building new 5G infrastructure. The overall costs are expected to be in trillions of dollars worldwide. Given the huge up-front costs, governments and mobile operators together have to develop various investment strategies and identify various funding sources for long-term investments, including private equity, sovereign funds, and infrastructure investment funds.

Fortunately, 5G enables much greater device density or significantly more connections within a coverage area. As indicated by Randall Stephenson, the CEO of AT&T, at CEO Speaker Series of Council on Foreign Relations, “4G networks, in a square mile you can connect thousands of devices. 5G, millions of devices per square mile, much lower power, much lower compute requirement.”  So, these costs will be divided among a much greater number of users and devices.

In India, like in most large economies, with the exception of China, the mobile network is built and operated by private companies. According to UBS, the cost for mobile operators to rollout 5G in India would be as high as US$30.5 billion.

 

Economic impact of 5G on GDP

A recent econometric study by GSMA Intelligence, based on the most comprehensive dataset used to date and covering the rollouts of 2G, 3G and 4G globally, found that, on average, a 10% increase in mobile adoption increased GDP by 1%. Moreover, it found that the economic impact of mobile adoption increases by approximately 15% when connections are upgraded from 2G to 3G; and by approximately 15% when connections transition from 3G to 4G. 

The assumption underpinning the overall 5G benefit is that the transition to 5G in India will deliver macroeconomic impacts on GDP of a similar magnitude to those delivered by the transition from 3G to 4G. The benefit at the country level is calculated as a function of the 5G penetration rate, as follows: 

t = time 

i = country

α = 5G penetration rate

β = 5G productivity impact 

In the case of India, the model foresees β = 0.01%, which translates to a GDP increase of 0.1% every 10% increase in 5G penetration rate. 

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