To convert 2G to 4G, telecom companies need to invest $8 billion

Availability of low-cost smartphones and tariffs also key to make the country 2G-free

Mukesh Ambani’s recent call to consign India’s 2G services to history won’t come cheap. If the telecom sector were to convert Ambani’s dream into reality, it would need to invest a substantial $7-8 billion.

Currently, 2G customers with private operators constitute one-fourth of the 1.2 billion mobile subscribers in the country. And if state-owned firms like the Bharat Sanchar Nigam Limited (BSNL) are included, 2G subscribers would comprise a third of the total number of mobile subscribers in India.

Clearly, operators will need fresh investments to increase their 4G coverage and convert their towers to those with a fibre backbone. For instance, BSNL does not even have a 4G network and is in the process of floating an RFP (request for proposal) for 4G equipment. The bulk of its 119 million customers are on 2G and a large percentage of them belong to smaller towns and rural India.

Private operators are in a better position. Vodafone Idea has a 4G population coverage of over 76 per cent across the country. But it also has the highest number of 2G customers amongst all operators — 185 million, which is over 63 per cent of its customer base. Bharti Airtel has a 4G population coverage of 85 per cent. And at 138 million, its 2G customers constitute about half its customer base. It is only Reliance Jio which runs solely on the 4G network.

Says Rajan Matthew, former director general of the Cellular Operators Association of India, “Operators have to invest $7-8 billion to make India 2G free. It makes sense, as running two different networks increases the cost of operating by 30 per cent. But for that, operators have to expand their network coverage so they can offer upgraded services to their own 2G customers located in these areas. All this requires investment, but most telcos are strapped for cash.”

For 2G customers, the main stumbling block in the way of upgrading to 4G is the cost of a new, 4G-enabled mobile phone. Reliance Jio solved the problem by launching a 4G feature phone. While it came without the trappings of a smart phone, it was priced at just Rs 1,100 and had free data thrown in.

The strategy worked, and more than half of Jio’s net customer addition, which at one time was at 6-7 million a month, came from those who availed of the offer. The phone was able to garner over 100 million new customers for the company, but slowly, its share of feature phone led net adds fell to a trickle.

To cater to 2G users who want a cheap smartphone to make the switch to 4G, Ambani has announced that Jio is working with its equity partner Google (in Jio Platforms) on a low-cost operating platform for a 4G smartphone. While entry-level 4G smartphones are available for Rs 3,000, customers on 2G are looking for a quality phone at a price which is closer to a feature phone.

Tariff poses the other big challenge for moving to 4G. At a minimum entry recharge pack of Rs 49 primarily for voice calls with some slow data thrown in , 2G services are half the price of 4G. What’s more, entry-level tariffs for 4G, which was raised last December, are expected to go up again as telcos look at increasing their average revenue per user per month to Rs 300. This is nearly double of what it is at present. It remains to be seen whether 2G subscribers will be willing to pay so much, even if there is a fall in the prices of entry-level smart phones.

Many operators say that one way to quicken the move towards a single tech network is for the Centre to tap into the resources of the Universal Service Obligation Fund, which has over Rs 50,000 crore of cash. If the Centre incorporates Ambani’s wish as a policy to enable India to have inclusive 4G growth, it could use the cash to offer low-interest loans to firms and hasten their investments in expanding the coverage and depth of 4G networks. That could be the push needed to make the country 2G free.