Telecom cos unlikely to cut tariffs to promote 5G, says COAI chief

Informist, Friday, Apr 1, 2022


By Jatin Grover and Sreejiraj Eluvangal


NEW DELHI/KOCHI – There is no chance that telecommunication operators will reduce tariffs to promote fifth-generation wireless services to consumers, given the large amount of investments involved in their development and rollout, believes S.P. Kochhar, director-general of the Cellular Operators Association of India. 


A huge capital expenditure is involved, and to recover the costs and increase the average revenue per user, telecom companies need to increase tariffs, Kochhar said in an interaction with Informist.


Comments by the head of the association, which represents all major telecom companies in India, came as India gears up for what is likely to be the biggest sale of wireless spectrum since 2010. 


Wireless operators such as Bharti Airtel Ltd, Reliance Jio Infocomm Ltd, and Vodafone Idea Ltd are gearing up to make their biggest investment cycle in nearly a decade to roll out 5G wireless services by August.


The launch of 5G services, however, also poses a dilemma for operators as they might have to rethink their two-year old strategy of implementing calibrated increases in data tariffs if they want to put the extra capacity created by 5G to use.


It is expected that the addition of a fifth-generation network to an existing fourth-generation base station will increase its data carrying capacity by 25-50 times.


But telecom users, who currently consume around 12-15 GB per month at a cost of around 15 rupees per GB, are unlikely to increase consumption simply because of 5G launch. In such a situation, operators may need to roll back the price increases implemented in recent years to stimulate consumption.


However, Kochhar does not anticipate such a situation, but expects companies to continue increasing prices, prompted by the extra-spending necessitated by the 5G launch.


"If 5G comes in, there is not going to be current level of spending, it is going to be much much higher and till the time stable position is achieved (by the telecom companies) how are you going to get the money back," Kochhar said.


Telecom tariffs in India are among the lowest in the world currently, and telecom companies have time and again pressed for higher tariffs.


Kochhar also pointed out that high spectrum prices for 5G would further reduce the headroom for companies to cut tariffs. 


"…if the government is going to charge us at the same colossal rates for spectrum, obviously it is very difficult to give services at the same rate if you are paying so much for spectrum and you know that there is no business case from enterprise side for some time to come, so from where you are going to recover the money," he said.


Telecom companies have been facing financial stress, and in order to increase their revenues and recover losses, raising tariffs is imperative for them.


So far, none of the telecom companies have commented on their post 5G launch pricing strategy. It is likely that market leader Reliance Jio could try to increase its lead over others by going for aggressive data pricing after the 5G launch.


If Reliance Jio does go ahead with lower priced data packs–taking advantage of the lower costs afforded by 5G–it could push any player without 5G into the abyss of bankruptcy. Vodafone Idea is particularly vulnerable to such a strategy, as the company is unlikely to be able to invest much in 5G due to a severe financial crunch, which incidentally has its roots in its delay to roll out 4G in time.  End


Edited by Aditya Sakorkar


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