India’s third-largest service provider, Vodafone Idea, hopes to finally launch commercial 5G services in another six to seven months, by which time the company believes it will have a “better idea” on how best to monetize its 5G investments.
“We are looking to launch 5G services in about six to seven months,” said Akshay Moondra, CEO of Vodafone Idea, in the company's recent Q3 FY24 earnings call. “While significant investments have already been made in 5G, there is no monetization happening yet, though it should be around the corner. We expect to have a better idea on 5G monetization by the time we launch.”
The biggest disadvantage for Vodafone Idea in not being able to launch 5G services is not financial since the other two telcos (Bharti Airtel and Reliance Jio) are yet to start making any financial gain from 5G. Both Bharti Airtel and Reliance Jio offer unlimited 5G data at 4G rates and are yet to launch a 5G tariff. Significantly, together, the two telcos have just 100 million 5G subscribers in spite of the fact that they launched 5G way back in October 2022. The reason for this is the high cost of 5G devices coupled with the lack of 5G-enabled use cases.
On the other hand, the 5G launch is bound to help Vodafone Idea in customer stickiness. While the 5G use cases are not well-defined, the end user likes to use the latest technology. It is for this reason that Vodafone Idea continues to lose its subscriber base.
Vodafone Idea’s subscriber base came down from 243 million at the end of November 2022 to 224 million by November 2023. Vodafone Idea had a market share of 21.33% in November 2022, while Reliance Jio and Bharti Airtel had a market share of 36.99% and 32.03%, respectively. While Jio and Airtel were able to grow their market share to 39.49% and 32.91%, respectively, Vodafone Idea’s market share came down to 19.44% in November 2023. So, it is fair to say that Airtel and Jio are gaining subscribers at the cost of Vodafone Idea.
To an extent, Moondra is right in saying that Vodafone Idea would have a better idea about 5G monetization by the time it launches in July-August this year. Airtel and Jio would have hopefully launched 5G tariffs, and Vodafone Idea will learn by the market response to the 5G tariffs. The launch of 5G is also likely to help Vodafone Idea by growing data consumption leading to higher ARPU.
Airtel’s Chief Executive Officer Gopal Vittal mentioned in the Q2 earnings call that 5G has led to an increase in data consumption.
Vodafone Idea has one of the lowest Average Revenue Per User (ARPU) in the industry today. Its ARPU is INR145 ($1.74) compared to Airtel’s INR208 ($2.5) and Jio’s INR181.7 ($2.18). Its 5G launch will arguably help Vodafone Idea to increase its revenue as average data consumption is likely to rise.
However, the company will need to clear the pending dues to its vendors before it awards them new 5G deals. As of now, Vodafone Idea is yet to announce any 5G deals. Moondra also mentioned that the company is in talks with several partners to finalize its 5G strategy.
Vodafone Idea will be using open RAN and vRAN technologies in its 5G network. This is significant, as largely, Indian telcos have ignored new technologies like open RAN in setting up 5G networks. Vodafone Idea has also conducted device testing of several OEMs on its network.
Recently, Vodafone Idea received a show cause notice from the Department of Telecommunications (DoT) asking for reasons for a delay in the launch of 5G services. Since the 5G spectrum auction in August 2022, the company was supposed to meet the minimum roll-out obligation of launching 5G services in 15 out of 17 circles (service areas) within a year.
Vodafone Idea is under a massive debt of INR2150 billion ($25.88 billion) at the end of December 31, 2023. The company’s capital expenditure in the first three quarters of the ongoing financial year came down by 56% when compared with the previous year.
While Vodafone Idea’s 5G launch might not be a revenue generator in the short term, it is likely to help the telco in preventing the exodus of customers and in growing its ARPU.