Why Jio and Vodafone Idea want India to sunset 2G

India's largest service provider, Reliance Jio, and its third-largest telco, Vodafone Idea, have called for a government policy to sunset 2G and 3G networks in the country. They were giving their views in response to a consultation paper from the Telecom Regulatory Authority of India (TRAI) titled "Digital Transformation through the 5G Ecosystem."

"The Government should come out with a policy and glidepath for closing down the 2G and 3G networks completely so that unnecessary network costs should be avoided, and all customers can be migrated to 4G and 5G services. This will also give great impetus to developing ecosystem to 5G use cases," said Jio in its response. 

The operator only offers 4G and 5G services in the country. It has also introduced affordable devices, like JioBharat, to attract Airtel and Vodafone Idea's 2G subscribers to its 4G network. 

While Bharti Airtel and Vodafone Idea have sunset their 3G networks, BSNL still offers 3G plans. And it will take some time for Indian telcos to completely switch off 2G networks, mainly because a significant percentage of India's population continues to use feature phones. India is believed to have around 250-300 million 2G users. Arguably, a significant percentage of these would be based in rural and remote areas with limited connectivity.

Jio and Vodafone Idea suggest that migration of 2G users to 4G and 5G will help in the development of 5G use cases. However, they don't elaborate on how sunsetting 2G and 3G will help in developing 5G use cases. Airtel has not responded to this consultation paper.

Globally, service providers are struggling to monetize their investments in 5G networks. In India, Jio and Airtel, the two telcos that have launched 5G services, are yet to launch separate tariffs for 5G services despite providing significant 5G coverage across the country.

The devices challenge

The biggest barrier to migrating 2G subscribers to 4G and 5G is the high cost of smartphones. Further intensifying this problem is the lack of entry-level smartphone options, as most providers focus on the premium segment.

"The entry-level segment (sub-$150) shrank to 46% of the market, down from 54% a year ago. The dearth of new launches in this critical mass segment was a barrier for new smartphone users, thus limiting the overall market's growth," said Upasana Joshi, research manager for client devices at IDC India. According to IDC, feature phone shipments touched 57 million in 2022, a drop of 18% year-over-year.

However, this gap in the market is possibly being addressed by the corresponding boom in refurbished devices. According to Counterpoint Research, 35 million to 45 million refurbished smartphones were likely sold in 2023, a growth of around 15% on the previous year.

Vodafone Idea agrees with Jio's position that the government should accelerate the migration of subscribers from 2G to 4G and 5G through subsidies.

"One of the alternatives could be that the government provide funds as handset subsidy to consumers at large, through their concerned TSP, for giving up feature phones and purchasing subsided smartphones. This can help such consumers to start digital journey thereby, bridging the digital divide," says Vodafone Idea's response to TRAI consultation paper.

4G coverage and cost

The other issue is 4G coverage in India. While private telcos Airtel, Jio, and Vodafone Idea provide significant coverage of 4G, this is not true for BSNL, which has launched 4G only recently. This is significant because BSNL still has an 8% market share (according to TRAI's latest data), with most subscribers in rural and remote areas. It is yet to launch 5G services.

Furthermore, while India has one of the lowest voice and data rates in the world, 4G rates are higher than 2G rates, which is bound to impact 2G users if they are moved to 4G. This is why Vodafone Idea is keen for the government to come up with a policy to sunset 2G. The telco's ARPU would go up considerably if its 2G users migrate to 4G. It has a lower ARPU compared to Airtel and Jio.  

Meanwhile, 2G is also used in the enterprise IoT segment, which would make it tough to sunset 2G networks completely.