AFTER a year of government-wide deliberations, late in December 2019, India’s Department of Telecommunications (DoT) announced that it had taken a decision to allocate spectrum for conducting 5G trials in the country. The trials, Telecom Minister Ravi Shankar Prasad explained, would be open to all operators and vendors.¹ By mid-January, reports informed that four operators, Vodafone Idea, Bharti Airtel, Reliance Jio and state-run BSNL, had submitted applications for trials. Vodafone and Airtel were said to be partnering with four vendors, i.e. Sweden’s Ericsson, Finland’s Nokia and China’s Huawei and ZTE. Reliance Jio and BSNL, on the other hand, had chosen a single vendor each in South Korea’s Samsung and ZTE, respectively.

Since then, there has been no further progress. In comparison, around the world, countries appear to be racing ahead with 5G network development and commercial operations. A February 2020 report by Viavi Solutions found that commercial 5G networks had been deployed in 378 cities across 34 countries, with South Korea, China and the US emerging as leaders.²

At the heart of the global 5G rush is the promise of massive economic gains. The fifth generation of wireless networks will enable extremely high speeds of connectivity, significantly higher connection density and near-zero latency. These advantages are expected to enhance machine-to-machine connectivity, data analytics and automation, resulting in the development of new products and businesses, boosting productivity and enhancing state capacity. Studies estimate that by 2035, 5G technologies will enable $12.3 trillion of global economic output and support 22 million jobs. In India, a government study in August 2018 estimated the cumulative economic impact of 5G on the country’s economy to hit $1 trillion by 2035.³

Considering the above, what explains the slow pace of movement on a 5G policy in India? This article argues that there are four underlying factors – economics of India’s telecom sector, the peculiarities of the country’s spectrum allocation policies, along with national security and strategic concerns.

The telecom sector is among India’s biggest post-liberalization success stories. The breaking down of state monopoly and recasting of the regulatory structure, which began at the turn of the millennium, resulted in intense competition and expanded consumer welfare. However, with time, there have emerged certain structural problems that are plaguing the sector’s future development.

Over the years, low-cost connectivity along with the increasing penetration of mobile phones fuelled subscriber growth. Consequently, India today is the world’s second-largest telecommunications market in terms of subscribers. And, there still exists much scope for expansion. As of December 2019, the Telecom Regulatory Authority of India estimated overall teledensity at 88.56%, with urban teledensity at 156.26% and rural teledensity at just 56.67%.

 

Competing for this market share are largely three private service providers – Vodafone, Airtel and Reliance Jio – who together account for approximately 90% of wireless data users in the country. Jio’s entry into the market in 2016, in fact, marked a turning point. Offering free voice calls and almost free data and messaging usage, it reshaped the economics of the sector. The ensuing competition led to a fall in Average Revenue Per User (ARPU), as competitors consolidated, slashed their offerings and invested in improving service quality.

Consequently, high levels of debt and low profitability now characterize the sector. Deepening service providers’ woes is the Indian Supreme Court’s October 2019 verdict interpreting Adjusted Gross Revenue (AGR) in such a manner that it added Rs 1.47 lakh crore to their liabilities. The verdict was the outcome of a 16-year-long legal battle between the DoT and service providers over assessment of license fees. What’s worth noting is that the bulk of this burden fell onto Airtel and Vodafone, estimated at Rs 35,586 crore and Rs 57,000 crore, respectively. Jio, on the other hand, has already paid its dues estimated at Rs 195 crore. Considering the above, service providers’ appetite for large capital investments that 5G networks will require remains questionable. What’s likely to make it even more troublesome is the added cost of spectrum.

Over time, successive Indian governments have viewed spectrum purely as a revenue generating resource rather than from the perspective of economic value generated owing to the network effect. This position has complicated spectrum allocation policy. The 2G scandal added an ugly political dimension to these decisions. In November 2010, a report by the Comptroller and Auditor General of India argued that the DoT had issued 2G spectrum licenses to service providers at throwaway prices, resulting in a loss of Rs 1.76 lakh crore to the exchequer. The scandal marked the beginning of the downfall of the Manmohan Singh-led UPA II government. The subsequent years witnessed intense politicization of spectrum policy. Consequently, broader considerations about cost conundrums facing service providers and the multiplier effect of cheap connectivity have largely been ignored. In other words, revenue generation is prioritized over value generation.

 

This dynamic is also evident in the 5G case. Despite back and forth with DoT, the Telecom Regulatory Authority of India (TRAI) has stuck to its base price recommendation for 5G spectrum at Rs 492 crore per megahertz. The Cellular Operators’ Association of India (COAI) believes that at this rate, Indian spectrum is ‘overpriced by at least 30-40 per cent compared to international standards and auction in other markets like South Korea and the US.’⁴ At a point in 2019, there appeared to be some sort of a middle path that was being worked out, with New Delhi potentially reviewing this figure. But no change was eventually announced.

At present, during its next auction, the Indian government plans to offer just over 8,000 megahertz of 4G and 5G spectrum, eyeing revenue of approximately Rs 5.86 lakh crore. This is likely to be the case despite the COAI suggesting that participation from their members is likely to be muted, owing to the ‘unrealistic pricing of the key spectrum bands that are for 5G.’⁵ Among the operators, Airtel has been the most vocal, suggesting that it might even skip the auction owing to concerns over the price. Consequently, the planned auction has witnessed a number of delays. Add to this the unfolding Covid-19 pandemic and the earliest that an auction will now take place is the end of 2020.

 

Another point of contention is the development of standards. Globally, 5G standards development is being carried out under the aegis of the 3rd Generation Partnership Project (3GPP). This is a consortium of seven major telecommunications standard development organizations, including the Telecommunications Standards Development Society, India (TSDSI), and a number of other associate partners. It is important to note that 3GPP in itself does not set standards. It develops technical specifications, which then get adopted and enforced by the standard development organizations that comprise 3GPP. Members, therefore, have autonomy in terms of final decision-making.

In this context, over the past year, COAI, the Global mobile Suppliers Association (GSA) and the European Telecommunications Standards Institute have been discussing proposals of local standards put forward by TSDSI. While largely adopting 3GPP guidelines, TSDSI says that it wants to make global standards India specific with certain enhancements. COAI has argued that this creates hurdles for Indian industry. GSA believes that there will be interoperability issues going forward. Despite that, TSDSI has pressed ahead. It believes that local standards are needed to ensure rural connectivity and software adjustments can help industry mitigate any challenges. In March 2020, the TSDSI’s Radio Interface Technology Proposal won the International Telecommunications Union’s approval. It now says it is working to make sure that its proposal interworks seamlessly with the 3GPP proposal.⁶ This too is likely to get delayed owing to the pandemic.

 

From a security and strategic perspective, these delays might prove beneficial, but only to a point. Washington increasingly views Beijing as a strategic competitor, with the tussle over 5G emerging as a critical component of this rivalry. On one hand, the Donald Trump administration has actively sought to decouple from the Chinese technology ecosystem. On the other, it has sought to persuade and even threaten allies and partners to ensure that they reject Chinese telecom equipment providers, particularly Huawei. Washington’s core argument to partners has been that the Chinese Party-state uses its economic might to pursue strategic objectives, with private firms being used as instruments of statecraft.

The US’s efforts have borne mixed results at best. Only a handful of American allies and partners, such as Australia, New Zealand and Japan, have formally barred Chinese equipment makers from their 5G markets. In contrast, European partners like France, Germany and the UK have refrained from an outright ban, arguing that the risk can be managed through a mix of regulation and technological solutions. Their approach is a product of a mix of economic and political considerations, such as switching costs, the cost-effectiveness of Huawei products and a desire to ensure strategic autonomy. Despite this, there has been greater agreement among the US and its allies and partners over the nature of security threats. This is evident in the proposals agreed upon at the 2019 Prague 5G Security Conference.⁷

 

The two-day conference, held in early May, brought together participants from 32 countries – including select EU and NATO member states along with Israel, Japan, Australia, New Zealand and South Korea – and four global mobile network operators. The objective was to arrive at a common approach towards cyber threats emerging from 5G technologies and recommending courses of action. The non-binding proposals that were finally agreed upon expand the definition of security threats to include non-technical aspects, such as political, economic or other behaviour of malicious actors, and supply chain security. The document also calls on taking into account the ‘overall risk of influence on a supplier by a third country.’ It further adds the need to consider the ‘legal environment and other aspects of (a) supplier’s ecosystem’, along with transparency related to ownership, partnerships, and corporate governance structures of service providers.

The proposals provided the framework for the EU’s new cyber security toolbox⁸ and Britain’s decision to keep high-risk vendors out of the network core and capping their access to non-sensitive parts of the network.⁹ Going forward, participating states are expected to work on sharing concrete tools, instruments, measures and solutions to tackle 5G security threats, arriving at a set of best practices.

 

India is not a party to the Prague Proposals. However, the recommendations and tools that could emerge from the process hold particular salience for New Delhi. On one hand, they provide an opportunity for India to learn from the experiences of other states and examine the effectiveness of different models. For instance, there is an ongoing debate in the country over observing the feasibility¹⁰ of European and British models and experimenting with local software solutions to tackle security threats.¹¹ On the other hand, the proposals, with clear political parameters for vendor participation, could constrain New Delhi’s room for manoeuvre and thereby impinge on its economic interests.

India imports an overwhelming majority of its telecommunications equipment requirements. Dependence on foreign vendors, therefore, cannot immediately be wished away. Moreover, given the structural financial challenges within the sector discussed above, there is a strong economic rationale for partnering with suppliers providing cost-effective, yet cutting-edge equipment. Clear standards for partnering with foreign vendors, along with a focus on network resilience and redundancies are imperative. Thus far, however, the Indian government has not provided any such guidelines; this is underscored by Jio and BSNL partnering with one vendor each for trials, with the latter being state-run and choosing a Chinese vendor.

 

The economic benefits, however, must be weighed against security and strategic implications. Although the Prague Proposals do not name any vendor or state, the references to Chinese vendors are unmistakable. For New Delhi, the security risks of working with Chinese vendors are greater, given the issues over territorial integrity and sovereignty along with enduring strategic mistrust that characterize the Sino-Indian relationship. Moreover, Beijing has been rather blunt with New Delhi. It has warned of ‘reverse sanctions’ on Indian firms and broader consequences if Chinese vendors are banned by India.¹² Yet, India has allowed Chinese vendors to conduct trials. Moreover, in doing so, it is unclear if the government has conducted a thorough technical assessment of the risks and examined potential mitigation strategies.

At the same time, New Delhi has actively engaged with Washington on 5G network development. The issue featured in discussions between US President Donald Trump and Indian Prime Minister Narendra Modi in Osaka in June 2019 and during Trump’s visit to New Delhi in February 2020. Mukesh Ambani’s remark to Trump during his Delhi visit about Reliance Jio being the ‘only network in the world that doesn’t have a single Chinese component’ is indicative of the significance of the issue for bilateral ties.¹³

 

India’s choice of eschewing a complete ban has as much to do with economic concerns as it has to with strategic imperatives. Deepening Sino-US competition is resulting in the splintering of cyberspace and the global technology and innovation ecosystem. Being locked into any one camp, however, would entail significant costs for India. Therefore, New Delhi has sought to create room for manoeuvre to preserve its strategic autonomy. But a common approach between the US and its partners, which specifically targets China, as evident from the Prague Proposals process would make this a much more difficult task. Invariably, this could squeeze India into a position wherein it would have to choose a camp, undermining India’s economic and security interests.

This strategic conundrum works well for those who believe that India should focus on complete indigenization of the 5G network, even if it entails further delays in roll out. Over time, the await indigenization community, in fact, has gradually expanded. There is, of course, diversity in the motivations of individuals who fall within this umbrella. For instance, some argue that indigenization is the only route to genuine security,¹⁴ others blend the security concerns with protectionist impulses.¹⁵ And then there are those who question the utility of 5G-powered systems in India, given the relatively weak ecosystem in the country characterized by low smart devices and 4G penetration.¹⁶

 

A confluence of the above factors has led to the Indian government essentially adopting a go-slow and wait and watch approach. While spectrum policy and sorting out the telecom sector are a matter of domestic policy, it is increasingly becoming clear that a decision on 5G network development will have strategic implications. Waiting and watching might work for a while, but sooner rather than later a decision must be taken. And in doing so, the tightrope walk that New Delhi is currently performing might prove to be very challenging in the long run as Sino-US ties continue to worsen.

 

Footnotes:

1. ‘India Allows Huawei to Participate in 5G Trials’, Economic Times, 31 December 2019. https://economictimes.indiatimes.com/industry/telecom/telecom-news/govt-will-give-5g-spectrum-for-trials-to-all-players-prasad/articleshow/73033442.cms

2. The State of 5G Deployments, VIAVI Solutions, February 2020. https://www.viavi-solutions.com/en-us/literature/state-5g-deployments-2020-poster-chart-en.pdf

3. ‘Making India 5G Ready’, Report of the 5G High Level Forum, 23 August, 2018. https://dot.gov.in/sites/default/files/5G% 20Steering%20Committee%20report%20v% 2026.pdf?download=1

4. ‘Price of 5G Spectrum in India 30-40 Per Cent Higher Than Global Rates: COAI’, PTI, 04 January 2019. https://economictimes.indiatimes.com/industry/telecom/telecom-news/price-of-5g-spectrum-in-india-30-40-pc-higher-than-global-rates-coai/articleshow/69648788.cms

5. Devina Sengupta, ‘Spectrum Sale May Fetch Only Rs 10,000 Crore Initial Payment’, Economic Times, 10 February 2020. https://economictimes.indiatimes.com/industry/telecom/telecom-news/spectrum-sale-may-fetch-only-rs-10000-crore-initial-payment/articleshow/74053765.cms

6. Danish Khan, ‘India’s Local 5G Tech Gets Traction Amid Opposition From Gear Vendors’, 18 March 2020, ET Telecom. https://tele-com. economictimes.indiatimes.com/news/indias-local-5g-standard-goal-gains-traction-amid-opposition-from-gear-vendors/74683214

7. The Prague Proposals, 3 May 2019. https://www.vlada.cz/assets/media-centrum/aktualne/PRG_proposals_SP_1.pdf

8. ‘Secure 5G Networks: Commission Endorses EU Toolbox and Sets Out Next Steps’, 29 January 2020. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_123

9. ‘New Plans to Safeguard Country’s Telecoms Network and Pave Way for Fast, Reliable and Secure Connectivity’, 28 January 2020. https://www.gov.uk/government/news/new-plans-to-safeguard-countrys-telecoms-network-and-pave-way-for-fast-reliable-and-secure-connectivity

10. Anandita Singh Mankotia, ‘Indian Telecom Companies May Leave Huawei Out of Core 5G Network’, 12 August 2019. https://economictimes.indiatimes.com/industry/telecom/telecom-news/indian-telecom-companies-may-leave-huawei-out-of-core-5g-network/articleshow/70636358.cms

11. Amrita Nayak Dutta, ‘India Can Secure 5G Networks With Local Technology, Top Security Advisor Raghavan Says’, ThePrint, 22 October 2019. https://theprint.in/diplomacy/india-secure-5g-networks-local-technology-top-security-advisor-raghavan/309259/

12. Sanjeev Miglani, Neha Dasgupta, ‘China Warns India of "Reverse Sanctions" if Huawei is Blocked – Sources’, Reuters, 6 August 2019. https://www.reuters.com/article/us-huawei-india-exclusive/exclusive-china-warns-india-of-reverse-sanctions-if-huawei-is-blocked-sources-idUSKCN1UW1FF

13. ‘Reliance Jio Doesn’t Have a Single Chinese Component, Mukesh Ambani Tells Donald Trump’, Economic Times, 28 February 2020. https://economictimes.indiatimes. com/industry/telecom/telecom-news/jio-doesnt-have-a-single-chinese-component-mukesh-ambani-tells-donald-trump/articleshow/74335119.cms

14. ‘Only 100% Indigenization Can Make India Secure in 5G Era: IIT Professor’, IANS, 11 July 2019. https://telecom.economictimes.indiatimes.com/news/only-100-indigenisa-tion-can-make-india-secure-in-5g-era-iit- professor/70167675

15. Dhairya Maheshwari, ‘Swadeshi Jagran Manch Protests Huawei Conducting 5G Trials in India, Writes to PM Modi’, IndiaTV, 31 December 2019. https://www.indiatvnews. com/news/india/swadeshi-jagran-manch-protests-huawei-conducting-5g-trials-in-india-writes-to-pm-modi-575218

16. Brijendra K Syngal, ‘5G Shouldn’t be Rolled Out in a Hurry’, The Hindu Businessline, 24 February 2020. https://www.thehindubusinessline.com/opinion/5g-shouldnt-be-rolled-out-in-a-hurry/article 30905507.ece