Price war unlikely after 5G launch: Nitin Soni of Fitch Ratings

Nitin Soni, Senior Director, Fitch Ratings, says the telecos would have an opportunity to increase their average revenue per user by launching 5G services at a slightly higher price than 4G.

5G launches soon. Could there be a price war because when India migrated from 2G to 3G and subsequently from 3G to 4G, it came at the cost of a telecom war?
I think, price war is unlikely because the industry has consolidated. We have two large telecos, and Vodafone-Idea, as you know, is continuously weakening. It has a very precarious financial position. So, the telecos would have an opportunity to increase their average revenue per user (Arpu) by launching 5G services at a slightly higher price than 4G. Having said so, I must tell you that we have seen in several global markets the 5G launch has not actually increased the Arpu so far. We have seen what 5G has done in Korea, Japan and the US --- it has capped the Arpu at a certain level, but has not really increased it.

The Indian market experience could be different. First, because Arpu levels are already very low. Bharti has the best Arpu at Rs 180 and the management has been gunning for higher figures. It has been gradually rising with consumers moving from 2G, 3G to 4G. I think, there is no price war, as such. But gradually we will see the Arpu rising. Telecos are unlikely to market or price the 5G significantly higher than 4G.

How do you see the construct moving in terms of what the companies have provided for in terms of the licence fee versus how much they would be able to recover by pure tariffs? Because the biggest challenge has been what telcos are paying for the licence and how much time does it take for telecom them to recovery.
That is right. I think the return on investment in the telecom market has always been very challenging and we have seen the 4G experience. What telcos actually paid for the spectrum and licences had actually come back as return on investment with rising tariff. In my view, the 5G experience will be different because as the industry has become consolidated.

Now, there are two large players and they have limited incentives to go on a price war and further decrease the tariffs. I think the return on investment for 5G will take some time, it is not going to be a situation where consumers will lap up the services in the next two to three years. It will gradually rise as people start shifting to 5G. Compelling applications may also be launched, when people will realise the importance of availing the 5G services.

And when you have data-intensive applications, people will gradually start moving to 5G over the next five years or so. I think, it will be a gradual return on investment. We believe that in terms of the return on investment the experience of 5G would be far better than 4G.