5G cost recovery in focus

As the 5G capital expenditure of the two major telecom operators Reliance Jio and Bharti Airtel taper from 2024, the focus shifts to the new tariff structure that they would be bringing out and their cost recovery plans. Both the telecom service providers have spent huge capital to build their 5G networks and are now in the process of completing the rollout across the country.

According to rating agency Fitch, Jio is investing $13-14 billion ($1.08-1.16 lakh crore) to roll out its 5G standalone network, whereas, Airtel is investing $3-4 billion ($24,928-33,237 crore) on 5G non-standalone network, besides the commitment of $5 billion (₹41,546 crore) towards spectrum in 2022. The capital expenditure intensity of both players is expected to come down post the completion of the network rollout by early 2024.

However, the plan for 5G monetisation through tariff hikes lacks a timeline as it needs support from competition.

Foreign brokerage JP Morgan recently predicted that the 5G monetisation through premium tariffs appears unlikely, while Fitch has forecast that Airtel and Jio would add 10 million and 20 million subscribers, respectively, in 2024.

It is in this context that cost recovery comes to focus. Reliance Industries (RIL) chairman Mukesh Ambani announced in the 2022 annual general meeting (AGM) that the 5G investment of Jio would be ₹2 lakh crore. According to the 2022 annual report, Jio made a cumulative investment of $60 billion (₹4.99 lakh crore) to build its digital ecosystem. On the return front, the telco posted a profit of ₹19,124 crore on operational revenue of ₹98,099 crore in FY23.

Airtel's capex is estimated to be around ₹33,000 crore for FY24, according to JM Financial. The capex of India business could decline to ₹20,000 crore from FY25, compared to ₹28,000 crore in FY23, it says. Sunil Mittal, chairman, Bharti Airtel said in the annual report that the telco has invested over $50 billion to build its network in India. Though its 5G capex is low as it depends on non-standalone technology, Airtel is already burdened with a consolidated net debt, including the impact of leases, of ₹2.1 lakh crore in March 2023. It posted a standalone loss of ₹89.6 crore on a revenue of ₹84,720 crore in FY23.

In the 2023 AGM, Ambani claimed that nearly 85% of the 5G cells operational in India are in Jio's network. We will have nearly one million 5G cells operational in our network by December, he said. "We are the only company with the capacity to smoothly transition our entire 4G customer base to 5G, with minimal additional capital expenditure. With the growing adoption of Jio 5G, we are also seeing an increasing trend of high-ARPU, post-paid customers choosing Jio as their preferred network," he said. Jio features technologies like standalone 5G architecture, carrier aggregation, and network slicing, with advanced AI/ML capabilities that optimise its network quality.

According to Mittal, Airtel has made the bold choice of going with non-standalone technology for 5G as it helps them avoid the expensive 700 MHz spectrum, and is working well in terms of customer experience. But Ambani claimed that the non-standalone technology is essentially a 5G radio signal delivered over an existing 4G infrastructure.

"This Non-Standalone approach is a hasty way to nominally claim a 5G launch, but it won't deliver the breakthrough improvements in performance and capability possible with 5G," he said in his 2022 AGM speech. However, Airtel managed to keep its costs low in its 5G transition. Airtel says it will have 5G Plus coverage across all major cities in India by December 2023.

While both the players are in a fix over 5G tariffs, the solace is that consumer spending on mobile services is increasing, propelled by a rise in customer upgrades from 2G to 4G and 5G services. Consumer spending on mobile services rose 2.5% sequentially to around ₹52,400 crore in Q1 FY24, according to telecom regulator TRAI.