5G future: Another turning point for telecom

The launch of 5G could well change the trend of low average revenue per user for the industry

This Diwali will mean a shift to a new telecom age and the countdown has begun. The shift will not only bring about galloping internet speed on the mobile phone as 5G is rolled out, but it could also usher in a multiplier effect on the average revenue per user (ARPU) — a metric that captures the health of a telecom firm and that of the telecom sector. The ARPU per month in India has been among the lowest in the world and telcos have gone on and on about the need to up that low three-digit number to unlock the revival of the sector.

Despite all the talk, the increase in ARPU for telcos has been terribly slow. The reason: Fearing that the competition offering rock-bottom rates will take away consumers, telecom operators have barely managed to take baby steps on tariff hikes. ARPUs are below Rs 200 a month even for the top players in the country. The industry average was resting at Rs 127.12 a month as of March 2022, according to the last performance data issued by the Telecom Regulatory Authority of India (Trai). Financial results of Reliance and Bharti groups put Jio’s ARPU at Rs 175.7 and Airtel’s at Rs 183 a month during the quarter ending June. Top telco Reliance Jio’s ARPU had grown only 4.8 per cent sequentially in the quarter ending June.          

The launch of 5G could well change that going by the conversation in leading telecom businesses. Senior executives are putting their heads down to do the math—both on tariffs and ARPUs as 5G gets ready for launch. The broad estimate at some of these firms is that ARPU per month could go up by 20 to 25 per cent as consumers binge on more and more data. If it plays out the way telcos are expecting it, this will be a go-to model for higher revenues even without companies raising their tariffs much. While the indication so far is that the 5G tariffs may not be substantially different from the 4G prices, telcos are not done yet on that deliberation. In fact, the tariff talk could go right down to the wire, as they say.

If ARPU does go up by around 25 per cent with 5G, both Airtel and Jio would breach the difficult Rs 200 level.  

So far the formula that the industry is banking on is that the data usage would go up manifold because of the ultra-high 5G internet speed, though the per GB cost may not change much. The optimistic thinking on high consumption of data is based on the current usage pattern. We heard long ago that data is the new oil. Now the buzz ahead of 5G is that subscribers will consume data like water. There’s more to the calculation than just drawing analogies with oil and water. Executives mapping the space are going frame by frame, literally, to arrive at a tariff figure and a happy ARPU number. The current trend suggests YouTube and online gaming are top of the charts in phone data usage. The assumption is that if a consumer is using “x” frames on YouTube currently, it could go up to “3x” post-5G. Frames per second, or FPS, is a unit that measures display device performance in videocapture such as on YouTube or in online video games. With greater FPS, the video motion becomes smoother.

Telcos are also eyeing the prospects of 5G video calls replacing text chats during group viewing of OTT (over-the-top) series. That too may form a big consumption basket. From 20 GB data a month, a consumer could go up to 50-60 GB once 5G becomes a reality. Then of course, there’s going to be a big enterprise play where the Internet of Things (IoT) is expected to take charge of anything from consumer business to agriculture.

The big challenge, as an industry insider puts it, is the shortage of chips, which is holding back telcos from pan-India rollout of 5G in one go. The metros are ready to start while the rest of India will have to wait.                

While ARPU may cross the Rs 200 barrier as data consumption rises, that may not be enough for telcos to get return on 5G investments. Also, a lot will depend on the conversion of 4G users to 5G. How many will convert and how long will it take? Use cases will determine the conversion rate, but a top executive suggests that around two-thirds of the 4G users will move to 5G soon enough. 

As we move over to the new battle with or without a disruptor, the upcoming Indian Mobile Congress—an important telecom industry summit—is sure to offer a glimpse into the 5G future. Mukesh Ambani and Sunil Mittal are expected to be on the podium once again to put across the big telecom message at a turning point.