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5G at least 2 years away – Bharti Airtel

5G faces a chicken-and-egg problem in India as operators wait for devices

Bharti Airtel, one of India’s top three telecom operators, said it sees no use case for 5G in India right now, given the state of the industry and prevailing spectrum prices, and added that 5G was at least two years away in India.

CEO Gopal Vittal’s comment comes less than a month after competitor Reliance Jio said it was ready to deploy 5G on its network in India and hopes to do so next year.

5G refers to the next generation of wireless communication technologies, and promises 10-20 times more data-capacity if the spectrum is increased by 4 times. Besides, it also promises low latency (5-10 milliseconds) compared to 4G (30-50 milliseconds), which will result in near instant communication and control.

However, Airtel CEO Gopal Vittal said there are two reasons why an Indian telecom operator cannot think of launching 5G at this moment.

First is the obvious lack of adoption of technologies that require ultra-low latency and high throughput connections: driver-less cars, remote surgery, virtual reality conferencing and so on.

But more crucially, he said, there was no way the current Indian consumers will be able to afford 5G services if the spectrum is priced at Rs 50,000 cr.

SPECTRUM COST

Ten years ago, telcos got a fairly large block (20 MHz) of pan-India, high-capacity 4G spectrum for Rs 12,847 cr, or 642 cr per MHz.

This time, TRAI’s recommended base price is close to Rs 50,000 cr for a pan-India block of 100 MHz of 5G spectrum. Interestingly, this cheaper than what telcos paid 10 years ago for 4G spectrum, as it works out to only Rs 500 cr per MHz.

However, what is distorting the math is the high amount of spectrum needed to operate 5G services.

While a telecom operator can hope to run a decent 4G service with a 20 MHz block, 5G requires at least 100 MHz (Rs 50,000 cr) to achieve the promised speeds of 1000 Mbps (1 Gbps) vs 100 Mbps for 4G.

Therefore, operators like Airtel want a block of at least 100 MHz size, and that too, at an affordable rate.

However, 100 MHz may be hard to come by as India is planning to auction only around 225 MHz among 3 players.

This means that each player is likely to get only 75 MHz, at a cost of around Rs 37,000 cr.

This number is comparable to what these operators have spent on 4G spectrum. Over the last ten years, each of the three Indian telecom operators have spent between Rs 25,000 cr to Rs 30,000 cr on expanding their 4G spectrum holdings.

According to Vittal, if they are to spend another Rs 37,000 cr to increase their data capacity by 10-20 times, then there also has to be demand for so much data in the market. More importantly, customers must also be willing to pay for this higher consumption.

If an average customer is unwilling to pay more than Rs 150 per month on his telecom connection, such an investment in 5G becomes difficult for operators to justify, Vittal pointed out.

On the other hand, if the idea is simply to increase existing data capacity — instead of catering to new, latency-sensitive applications like driver-less cars — operators can simply use a part of this money to add more spectrum to their existing networks. Unlike setting up 5G, this can be done without putting up new towers and base stations.

“The fundamental issue is, at these levels of ARPU, with what 5G has to offer — 5G offers basically higher speeds and lower latencies. If you have more spectrum of 4G without deployment of any radio, you can still get higher speeds. The issue is not 5G vs 4G, but how much spectrum is loaded onto a particular site and how much capacity is consumed,” he pointed out.

“The price of spectrum in 5G indicated by TRAI are very very expensive and we won’t be able to afford it at those levels. We don’t believe there’s a business case at those levels,” he added.

“TWO YEARS OUT

For 5G to really work, he pointed out, there must be a demand in the market for low-latency, high-throughput wireless data connectivity, and this is required primarily for services such as remote surgery, augmented reality and so on.

“..the eco-system that is there for 5G is very nascent, both in terms of applications and devices…We believe it will be at least a couple of years out before 5G has any meaningful significance in India,” the Airtel CEO said. “Device prices are still high..right now, we don’t see it crashing in a hurry.”

DEJA VU

Customers and market observers may be forgiven for having a sense of deja vu hearing Vittal’s comments. Incumbent operators such as Idea Cellular also used to maintain similar views of 4G five to six years back, which helped newcomer Reliance Jio seize the market.

As late as July 2014, Idea CEO Kapania had suggested that the Indian market was nowhere ready for 4G, and that 4G would make sense once 3G networks had run out of capacity.

Pointing out that 3G usage was only 12% at the time, Kapania had said: “With India’s per-capita income, we cannot afford expensive LTE, both in terms of equipment cost and handsets. It is only when the adoption around the world reaches billions of customers, when the overall ecosystem becomes far more favorable in terms of equipment supply as well devices that LTE should be launched…It is up to the government of India to finish the unfinished task of issuing 3G spectrum to private operators.”

Led by a belief that 4G device and equipment prices would remain too high to be affordable for Indians, incumbent operators failed to realize the threat posed by Reliance Jio. Even as incumbents dismissed the possibility of 4G taking off in India any time soon, newcomer Jio was busy building its a pan-India 4G network. 

Over the next four years, Jio went on to capture the majority of India’s wireless data market, right from under the noses of Airtel, Idea and Vodafone. The incumbents have since struggled to compete with newcomer due to the higher operating expenses associated with legacy technologies like 2G and 3G.

Something similar may eventually play out in the 5G market as well, as 5G promises to bring down costs drastically by changing way telecom networks are constructed and operated.

Traditionally, telecom networks have been largely a hardware-cum-software market. In other words, the core logic involved in the running of the telecom network was contained in software which was in turn embedded in the switches, base stations and other equipment used to construct the network. In other words, when you purchased the hardware, you also purchased the software.

However, 5G offers telecom operators new ways to slash equipment costs by separating traffic management from the equipment, making it more like a computer network.

Several collaborative, open source projects have cropped up in recent years to deliver equipment-agnostic network management software. These software can then be deployed on regular computers to compatible network equipment and the traffic flow.

Since such a control structure can be more centralized, a 5G network can be redesigned and reconfigured on the fly. The operator can, for example, decide to re-route traffic from a particular town via a backup route if the primary route becomes congested — without sending a single engineer on location.

However, the key advantage of such open-source 5G projects would be cost. Since the software is open source, it would be essentially free of charge.

Also, since the software code is available to everyone to examine, more and more equipment vendors could design hardware that would work with such software, increasing competition in the hardware market and reducing prices.

For example, instead of purchasing a base station box from a vendor, the operator can simply run Linux on a mini-computer at the site and download and install the corresponding base station software on it.

Both Reliance Jio and Bharti Airtel have indicated that they are involved in creating and testing out such open platforms.

Jio Chairman Mukesh Ambani, who last month announced that his company has got a 5G solution ready, emphasized the importance of open technologies in his company’s 5G solution.

If Jio is able to deploy such a 5G solution to compete against the proprietary 4G networks of its rivals, it could set off another mega disruption in the market similar to what was seen when it launched its lower-cost 4G service.

Meanwhile, Vittal indicated that Airtel too has its eyes on the ball as far as emerging technologies are concerned.

He said Airtel is already working with US-based Altiostar, one of the pioneers in the virtual radio access network technology.

Altiostar provides software that can be deployed on regular computers/servers and transforms them into network components such as the base band unit or BBU — a device that converts cellular signals from the antenna into ‘regular’ networking signals for onward transmission.