Looming recession may hurt 5G in India
The euphoria of finally launching 5G services last month might be short lived in India if a recession becomes a reality, impacting the uptake of the new mobile technology.
The world economy was recovering from the COVID-19 pandemic when it was hit by rising inflation and the Russia-Ukraine war. These factors are pushing the major economies into a recession. The recent job losses announced by several major players, including Meta (Facebook), Twitter and Amazon, sound an alarm bell on what lies ahead. A UN report last month said that this recession is likely to inflict "worse damage than the financial crisis in 2008."
While, so far, India has remained largely insulated from the world downturn, that is unlikely to last. Major agencies, including the International Monetary Fund (IMF), World Bank and Reserve Bank of India (RBI), have slashed India's initial GDP forecast for the ongoing financial year. The Indian technology sector is also inextricably linked to the US tech industry, which is officially battling a recession.
In this scenario, India's telecom industry will also feel the impact soon. And possibly the worst pain will be felt in 5G.
"From a 5G adoption perspective, it is devices that drive the adoption of services," said Ashwinder Sethi, a principal analyst at Analysys Mason. "In a recessionary environment, consumers tend to become price sensitive and might be reluctant to buy new handsets, thus impacting the uptake of 5G services."
Jio and Airtel continue to offer 5G at 4G prices. Any move to increase fees could slow down the pace of adoption in a recessionary climate.
But 5G rollouts will probably not suffer as badly, with both Reliance Jio and Bharti Airtel likely to meet their rollout targets, according to Sethi. India launched 5G services only last month and the service providers are partway through rolling out 5G networks in different areas of the country. Airtel has said that it will cover 5,000 towns and cities with 5G by March 2024, while Jio is targeting coverage of the entire country by December 2023.
Another factor is that India is a predominantly prepaid market, which accounts for more than 90% of users. While consumers in developed markets, like the US and Europe, are locked into pre-decided tariffs for long periods, this is not the case in India. It means an Indian consumer can more easily reduce spending on connectivity.
The impact of a recession might be more significant in the enterprise market as businesses slash operating budgets and cut headcount. "Enterprises will cut down on discretionary spend and will be cautious on spending on new technology, which will impact the uptake of 5G," said Sethi.
Fixed network pain
The fixed network market could also be hurt by a recession in India. Both Reliance Jio and Airtel have been on the attack in this segment as home broadband usage continues to rise.
"If there is a downturn, then the adoption of fixed networks by new households will also be impacted," said Sethi. "I don't see any major impact on the existing customer base of the telcos because as of now only 9% of the households are using fixed networks in India and this is primarily from the middle class and upper class. The users may also go for a lower-priced mobile data package and increase the usage of Wi-Fi at home for voice and data."
- A wave of job cuts is crashing into the tech sector
- Vodafone takes axe to €1B in costs as recession looms
- Apple hit by iPhone delays as global handset sales sink to eight-year low
— Gagandeep Kaur, contributing editor, Light Reading