Israel War Could Set Back Telecom Companies’ 5G Plans By Years

Israel War Could Set Back Telecom Companies’ 5G Plans By Years

/ The ongoing Israel-Palestine conflict is casting a shadow of uncertainty over the ambitious 5G expansion plans of telecom companies.

By Babloo Farkade.

Oct 12, 2023, 22:13 PM IST

The possible escalation of the conflict between Israel and the Palestinian militant group Hamas is expected to have a ripple effect on the telecom industry, pushing up costs for importing critical 5G network equipment. This development could potentially disrupt the rollout of cutting-edge 5G networks by India’s top telecommunications providers, according to industry insiders, financial experts, and analysts.

A recent report in the Economic Times has shed light on the potential financial implications of this geopolitical turmoil. The report suggests that the cost of importing 5G network equipment could surge by as much as Rs 2,000-2,500 crore in the initial phase, significantly affecting the plans of telecom giants in India.

The root of this issue lies in the fact that a prolonged and widespread conflict could trigger a devaluation of the Indian rupee against the US dollar. This devaluation could lead to increased foreign debt servicing costs for telecom companies, impacting their profitability in the upcoming quarters. A substantial portion of the over $7 billion telecom sector debt in India is denominated in US dollars, making it vulnerable to currency fluctuations.

“The Israel-Hamas war has not yet caused an alarming fall in the rupee against the US dollar, but if it escalates and becomes a wider global conflict, there could be some currency volatility, with the rupee potentially falling by around 3-4% against the US dollar. This, in turn, would make the imports of 5G network gear more expensive, and since nearly two-thirds of the equipment used in domestic networks is still imported, it will be a considerable setback,” explained Rohan Dhamija, the head of Analysys Mason’s India & Middle East division, in an interview with ET.

It’s important to note that nearly 67% of telecom equipment used in India’s local phone networks is imported, primarily from global vendors like Ericsson, Nokia, and Samsung. Consequently, leading telecom giants such as Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi) collectively allocate approximately $7 billion (over ₹58,000 crore) annually for imported network equipment, illustrating the potential magnitude of the cost escalation in the wake of currency depreciation and global conflicts.

As the Israel-Palestine conflict continues to unfold, telecom companies in India must closely monitor the evolving situation and its potential impact on their 5G network expansion plans. The interplay between international conflicts, currency exchange rates, and the telecom industry highlights the need for strategic planning and risk management in this increasingly interconnected world.

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