In today's Finshots we talk about the recent spectrum auctions that could have great significance for the telecommunication space as a whole.


The Story

Most people think 5G is inevitable. It might take off next year. It might take off in three years. But the general consensus is that it will take off sooner than later. But until then, we will have to do with 4G. And according to a parliamentary panel report, the current technology will likely continue to dominate the market for the next 5–6 years at least. Meaning telecommunication companies and the government still have a lot of work to do on making 4G services more accessible.

So on March 1st 2021, the government kicked off the latest round of auctions and sold ₹77,800 crores worth of 4G airwaves. In fact, they had put up ₹3.92 lakh crore worth of spectrum on offer, but they weren’t expecting to sell everything considering the pandemic and all that. So the response as it stands is quite respectable. However, it’s increasingly looking like it's going to be a three-way battle from here on in. In the latest auction, Jio obviously took the lion’s share of airwaves by bidding close to ₹57,100 crores. Airtel wasn’t far behind with ₹18,700 crores. But it was Vodafone and its paltry ₹2,000 crore investment that’s worrying some people. Is the three-way battle going to devolve into a duopoly and how will these players adopt 5G going forward?

These are the all-important questions. But before we get too ahead of ourselves, some background on spectrum allocation.

You’ve probably heard of the word spectrum thrown around a lot. Including things like 700MHz band, 800MHz band, 2300 MHz that most people can’t make sense of. The problem is, you aren’t visualising them right. Maybe think of these bands as highways fashioned using airwaves. That is to say — If you’re a telecommunication company and you wanted to facilitate voice or video calls, then you can’t do your job unless you have access to these highways.

These bands are often subdivided across multiple regions. Think Bangalore, NCR, etc. So for instance, if you bought the 700 MHz band in Bangalore, then you’ll have exclusive rights to transmit over these airwaves in the region — no questions asked. And the auctions help the government to allocate different bands across different regions to companies that are willing to pay the most. Also, remember — The latest auctions were primarily intended to facilitate 4G services. But there’s something interesting happening. Telcos also intend to use these bands to start rolling out 5G services pretty soon. And that seems a bit counterintuitive at first. If you know anything about 5G, you know that it works best on an entirely different band of frequencies.

However, here’s the thing. We still don’t know how 5G is going to evolve. Even telecom operators have no clue. They could try getting there first. But they won’t know if their tech will be future proof, especially considering the solutions are still only taking shape as we speak right now. So the obvious choice for most of these players is to build the 5G network by leveraging the 4G infrastructure. As one article in “McKinsey Insights” notes — “Mobile operators can take an evolutionary approach to infrastructure investments, upgrading existing 4G core networks to support 5G ones and adding new 5G functionalities as needed. This incremental approach also makes sense from a financial perspective, given that investments can be kept down when revenue remains uncertain.”

Airtel, for instance, has already demonstrated its 5G services live over a commercial network in Hyderabad recently. They used the 1800 MHz band to concurrently operate 5G and 4G services within the same spectrum block. So yeah, this might be the first baby steps companies are taking towards that elusive 5G future.

Meanwhile, the recent auction is also expected to push 4G in a big way. Barring Jio, who only operate 4G networks, a sizeable chunk of Airtel and Vodafone customers (51% and 63% respectively) are still on legacy 2G/3G networks. But that will change eventually. After all, it’s much easier and cost-effective to operate a single network and companies are already nudging their customers to switch.

Bottom line — This spectrum auction could have great significance for all of us and now you know why.

Until next time…

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