5G will not boost ARPU at once, Voda Idea tells telecom regulator

If you thought the introduction of 5G will help boost the average revenue per user (ARPU) of  telcos and help them jack up their profits, think again. A recent submission to the Telecom Regulatory authority of India (TRAI) by Vodafone Idea Limited (VIL) states that data from 23 countries which have launched 5G services has shown that their overall weighted ARPU in the first six to 10 quarters went up by a mere 1 per cent. 

More importantly, in 13 of these countries, the ARPU actually fell after 5G was introduced. For example, it declined by 2 per cent in Australia, by 4.4 per cent in Canada, by 1.7 per cent in France and by 0.7 per cent in China. The best performance was in South Korea, but even here, and despite the fact that the country’s 5G usage is mature, the ARPU growth was 3.5 per cent in the first eight quarters.

VIL also pointed out that a similar trend was seen when Indian telcos shifted from 3G to 4G in FY 2016. Between FY16 to FY 21, the compounded annual growth rate (CAGR) of ARPU across all telcos was in the negative by 3.9 per cent — dropping from Rs 128 in FY16 to Rs 105 in FY 21. 

The company made these presentations to justify the need for reducing the base price of 5G spectrum in the upcoming auctions so that the telcos can build a viable business model. It also emphasised that the biggest beneficiary of 5G will be new-age services like health tech, connected cars, private networks, online retail and edtech. And, of course, it will also boost smartphone sales.  

Backing VIL’s stance, Airtel, in its presentation to the regulator, has pointed out that the annual revenue realisation over the last decade per MHZ has been falling. This, Airtel says, suggests that the expectation of the bidders about the incremental value of spectrum to be auctioned will be much lower in 2022 than before. For instance, the access revenue per MHZ per year has fallen dramatically from Rs 76 crore in 2014 to a mere Rs  45 crore in 2021.

Airtel says this is reflected in the fact that a big chunk of the spectrum is remaining unsold because of the high base price. In 2014 the unsold spectrum on offer was only 18 per cent, but this has gradually climbed to 63 per cent in 2021. And on an average, the total spectrum which has remained unsold since the launch of the auction in 2010, is as high as 41 per cent across all bands.  

Reliance Jio, too, is urging for a more rational pricing of spectrum. It has argued in its submission that the spectrum costs as a percentage of annual recurring revenue is one of the highest in India — 32 per cent compared to 1 per cent in China, 8 per cent in the UK, 4 per cent in Brazil and 10 per cent in Germany.