ProfitNama

ProfitNama

Norms Soon to Let Telcos Lease 5G to Private Networks

Telecom Firms Granted Leasing Rights for 5G Spectrum to Private Networks

Source: Economic Times (January 5, 2024)

Layman’s Analysis

The Department of Telecommunications (DoT) is set to release guidelines allowing telecom operators such as Jio, Airtel, and Vodafone Idea to lease their 5G spectrum to private captive networks of enterprises. This move is designed to streamline spectrum access for industries seeking customized private 5G networks and helps telecom companies monetize their 5G services. The leased spectrum can be utilized by corporates for their exclusive use, with the leasing fees counting as part of telecom revenue.

This policy is a win-win situation, as it provides industries with tailored 5G solutions without the need for their spectrum and enables telecom operators to generate revenue from their 5G investments. The leased networks will primarily focus on key enterprise verticals like manufacturing and logistics, where reliable low-latency 5G solutions are crucial. The guidelines will specify details such as the quantum and period of leasing, geographic area, and other essential factors, all subject to DoT approvals. It’s important to note that there will be no interference allowed with public networks.

Norms Soon to Let Telcos Lease 5G to Private Networks

Impact on Investors

For retail investors in telecom stocks like Bharti Airtel and Reliance Jio, this leasing policy suggests potential upside from 5G monetization beyond consumer mobility services. The move helps justify the high spectrum investments made by these companies and opens up revenue diversification opportunities, especially in enterprise use cases like IoT and private networks.

Institutional investors are likely to view this policy as a positive development, expanding the potential for 5G enterprise adoption and creating new revenue streams for the telecom industry’s next growth phase. This aids return outlooks on ongoing investments in 5G if executed well.

Impact on Industries

For Indian enterprises, the policy facilitates prompt access to customized private 5G solutions, aiding in digital transformation efforts. Industries such as manufacturing and logistics benefit from deployment agility without the need for proprietary spectrum. Key advantages include reliable coverage, low latency, and quality of service assurances, especially for automated processes.

Cost savings also come into play with an operational expenditure model that avoids significant capital expenditure. Smaller enterprises can access these solutions without the need for proprietary buildouts. Technology partners supporting industry 5G implementations, such as Infosys and TCS, also stand to gain.

For telecom operators, the policy unlocks a crucial new revenue channel, allowing them to monetize 5G investments beyond serving mobility subscribers. Targeting high-value B2B clients improves Average Revenue Per User (ARPU) and customer loyalty.

In the long run, the broader gains in productivity and process transformation for Indian manufacturers enhance global competitiveness, aligning with the country’s self-reliance goals.

Long-Term View (5-10 years)

Over the 2025-2030 horizon, leasing opens up significant enterprise 5G connectivity revenue for telecom operators, diversifying services beyond retail mobility. As new applications and use cases evolve, Business-to-Business (B2B) spending on 5G solutions offers a substantial opportunity, estimated at over $5-10 billion, according to industry estimates.

For Indian industries, the move brings longer-term productivity, efficiency, and automation gains, improving quality and cost competitiveness. Especially for fragmented sectors like healthcare, retail, and agritech, low-cost plug-and-play models aid technology adoption. Private 5G solutions enhance real-time supply chain coordination and automated decision-making through AI/ML.

Policy evolution is critical to balancing enterprise needs with fair returns for spectrum investments by telecom carriers. Gradual direct allocation models may emerge for national priorities, but preventing market distortion is crucial for sustainability.

Short-Term View (6-12 months)

Over the next 6-12 months, the implementation of guidelines will see telecom operators developing focused enterprise 5G strategies, identifying lead customer verticals. Engaging with channel partners like System Integrators (SIs) and hyperscalers will aid in the rollout of these solutions.

Early wins are anticipated for companies like Jio and Airtel in industrial automation, manufacturing, and smart cities, where proof of concepts already exists. Vodafone Idea may focus on segments like healthcare and logistics for turnkey solutions.

Enterprises seeking customized captive networks can expect faster deployment, avoiding their spectrum auctions or DoT approvals. Cost savings will materialize with an operational expenditure model that avoids significant capital expenditure. Major corporations, including Reliance, Tatas, and Adanis, are likely to emerge as early adopters of private networks.

Success factors include tailored solutions rather than one-size-fits-all approaches. Regulatory approvals during the transition phase pose risks of delays, and enterprises migrating from 4G to 5G will need effective change management.

Overall, momentum is expected to build, but execution remains key to scaling this emerging opportunity. Maturing specialized applications will be crucial to expanding beyond connectivity provisioning, but policy support improves medium-term visibility.

Companies Impacted by Telecom Spectrum Leasing for Private Networks:

Indian Companies Potentially Gaining:

  • Reliance Jio (RJIL): Leading 5G player with nationwide coverage and aggressive enterprise push. Lease revenue could boost RJIL’s top line and diversify income.
  • Bharti Airtel (AIRTEL): Strong enterprise focus and wide 5G footprint. Leaning could enhance monetization and competitiveness.
  • Vodafone Idea Ltd (VIL): Struggling financially, leasing revenue could provide a much-needed financial boost. However, limited 5G coverage might make them less attractive partners.
  • IT Services Companies: (e.g., Infosys, TCS, Wipro): Expertise in cloud, edge computing, and IoT can support private network deployments, creating new business opportunities.
  • Cybersecurity Companies: Increased network complexity from private networks could drive demand for security solutions, benefiting companies like Quick Heal, Zscaler India.

Indian Companies Potentially Losing:

  • Telecom Equipment Manufacturers: (e.g., Tejas Networks, Tech Mahindra): Direct spectrum allocation to enterprises could bypass traditional telecom networks, potentially reducing demand for their equipment.
  • Small ISPs: Reliance on larger telcos for leasing might limit their growth and market share in enterprise connectivity.

Global Companies Potentially Gaining:

  • Global Cloud & Networking Providers: (e.g., AWS, Microsoft Azure, Google Cloud): Private networks could leverage their cloud and edge computing technologies, creating new customer segments.
  • Global Network Equipment Manufacturers: (e.g., Ericsson, Nokia, Cisco): Their equipment might be chosen by enterprises setting up private networks directly, impacting domestic manufacturers.

Global Companies Potentially Losing:

  • Global Mobile Network Operators: Similar to Indian telcos, their enterprise revenue streams could face competition from direct spectrum allocation to enterprises.

Market Sentiment:

  • Short-term: Positive for large telcos like RJIL and AIRTEL, potentially boosting their stock prices. Mixed sentiment for IT and cybersecurity companies depending on their exposure to private networks. Potential uncertainty for telecom equipment manufacturers and small ISPs.
  • Long-term: Increased adoption of private networks could reshape the Indian telecom landscape, impacting revenue streams and market dynamics across various sectors. The outcome of the direct spectrum allocation debate will further influence the long-term impact.
error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here