The Competition Commission of India (CCI) has said providing adequate 5G spectrum to the debt-laden telecom sector at reasonable rates will be the key to creating a competitive market for the technology.
"For India, spectrum allocation will be key to the successful launch of 5G services. Based on available information, the spectrum for 5G in India will be relatively more expensive than other countries," the CCI said in a report titled 'Market study on the telecom sector in India'.
It said the quantum of spectrum allocation will determine the quality of 5G offerings as scarcity of airwaves increases costs and makes operations inefficient. For the success of 5G technology in India, it is imperative to create a competitive market.
"This will imply ensuring assignment of the spectrum at a reasonable cost balancing revenue realisation and industry viability. This will ensure that the capital market remains interested in funding network upgradation and expansion, including the acquisition of spectrum," the report said.
The government will conduct auction for 4G airwaves in March. However, it has not said when it would be done for 5G spectrum.
The current financial health of the sector would result in an uneven speed of adoption of 5G technology by operators, with the more profitable ones likely to be faster off the block. "In case this scenario unfolds, it will have implications for the level of competition in the long-run," the fair trade regulator said.
The high cost of spectrum acquisition and the demands of network upgradation have increased the industry's debt burden.
Operators have paid upwards of Rs 3.5 lakh crore across six auctions between 2010 and 2016. The spectrum costs in India are approximately 7.6 per cent of their aggregate revenue, making them amongst the most expensive in the world, CCI said, adding that the average spectrum an Indian operator holds is 31 MHz compared to the global average of 50 MHz.
Besides, technological disruption and tariff competition triggered by the entry of Reliance Jio aggravated the financial distress, which is reflected in the "unprecedented" decline in the revenue of the industry through the years 2017 and 2019, CCI said.
While India is among the lowest priced telecom markets in the world, it has caused quality issues in services. "While India is undoubtedly a price-sensitive market and price elasticity of mobile services is known to be much higher than most other countries, the quality of service has been a victim, with call drops finding mention in the Parliament as well," it said.
The report said rising leverage is among the principal challenges facing the sector. The interest coverage ratio for the industry is considerably depressed due to the presence of heavily indebted operators. Besides, the Return on Equity (ROE) is also negative for most operators for several years since 2011-12, which presents difficulties for the long-term viability of telecom businesses.
"Recent investments in RJio and the rights issued by Airtel and VIL (Vodafone Idea Ltd) reflect long-term intent and are positive signals for the industry. By themselves, these are, however, inadequate to address the sustainable future for the industry," the report said.
It also highlighted the need for formal and informal line of communications between the Department of Telecommunication, the Telecom Regulatory Authority of India, CCI and the envisaged Data Protection Authority to ensure regulatory decisions are robust and consistent.