Telcos wary of huge 5G costs amid China row

The central government’s move asking state-owned BSNL and MTNL not to purchase Chinese-made equipment to upgrade their mobile networks has triggered fears among private firms that they may have to follow suit.

Telecom operators Bharti Airtel Ltd and Vodafone Idea Ltd may be hit hard if they have to substitute 5G Chinese equipment that provide significant cost advantage. Only a handful of companies—Ericsson, Nokia Networks, Samsung, Huawei and ZTE—manufacture 5G equipment. The last two are Chinese.

Industry estimates peg the market for Indian telecom equipment to be around ₹12,000 crore annually, of which Chinese vendors account for roughly a fourth. The rest of the market comprises Sweden’s Ericsson, Finland’s Nokia and Korea’s Samsung. Bharti Airtel and Vodafone Idea work with both Huawei and ZTE, besides the European vendors, while Reliance Jio works with Samsung.

Reuters reported the government instruction on 18 June saying it was aimed at keeping Chinese telecom gear out of an almost $8 billion plan to help loss-making operators BSNL and MTNL. “Since that plan will be funded by public money, they (BSNL, MTNL) should try to ensure they buy made in India equipment,” the news agency quoted an unnamed person in the government as saying.

Though private telcos have not received official direction to steer clear of Chinese equipment, speculation is rife that they may soon be asked to do so, considering the ratcheting up of measures by India in business and commerce.

On Tuesday, the US formally labelled Huawei and ZTE as threat to national security, with secretary of state Mike Pompeo calling Mukesh Ambani’s Reliance Jio Infocomm a “clean telco” for rejecting Huawei.

Telecom sector analysts said the cost of shifting from Chinese telecom equipment is likely to be significant for telcos although not unaffordable.

Mahesh Uppal, a consultant on telecom regulation, said from a 5G perspective, the upfront cost will be a concern if some of the vendors are not given access. “For 5G investments, reducing competition in the market will leave fewer incentives for the remaining equipment providers to reduce prices. It is in the best interest of telecom operators to have a vibrant market to choose from,” said Uppal.

He said transitioning to a new provider is not a trivial process for telcos. Even for transitioning existing equipment requirements, one has to consider that the people who handle the technology will also have to be trained on the new platform.

A national 5G rollout will be cost-intensive for the telecom sector. Higher equipment costs, stretched balance sheets and high spectrum prices could make things difficult. “Based on estimated costs for a national 5G rollout of RMB 600 billion (in China), the incremental revenues would provide a 2.4% return on the 5G investment over a 10-year period,” Bernstein analysts had said in May. At current exchange rates it is equivalent to $85 billion.

For Indian telecom operators, the cost is likely to be much higher as they will have to change their equipment altogether for 5G launch. Bharti Airtel and Vodafone Idea declined to comment.

ishita.g@htlive.com