The past year has been an interesting one for the Indian telecom sector. While intense competition and pricing pressures continued to erode the sector’s profitability, the launch of the National Digital Communications Policy (NDCP), 2018, lent it renewed confidence. Going forward, the competitive headwinds are likely to continue; however, policy clarity and escalating data demand will help the industry identify new growth areas. Industry experts comment on the key developments in the sector…
What has been the progress in the telecom sector in the past one year?
T.R. Dua
The telecom sector continued to witness investments for strengthening 4G networks. As of May 31, 2019, the number of telecom towers installed in the country was 549,869 supporting 2,153,537 base transceiver stations. There has been rapid consolidation in the sector during the past three years. As a result, the tenancy factor has dropped from 2.01 in 2017 to 1.84 in 2019.
While there has been a slight decline in the number of mobile subscribers during the past year, there has been an impressive growth in internet subscribers.
Rajan S. Mathews
The past year has been a landmark one for the telecom industry, buoyed by noteworthy developments such as setting the stage for 5G and a myriad other emerging technologies, unveiling of the NDCP, 2018, the Aadhaar verdict, mergers and acquisitions and the resulting consolidations, the goods and services tax and e-KYC, the recent crackdown on illegal repeaters across the length and breadth of the country, and the strides made in right-of-way (RoW) guidelines.
The government and the telecom sector joined hands to play an admirable role in ensuring unhindered data and call connectivity, mitigating incidences of call drops to a huge extent. Each and every stakeholder played their part with the singular aim of expanding infrastructural capabilities, making connectivity more robust, and enabling the delivery of uninterrupted digital services.
T.V. Ramachandran
The acceleration of 4G deployments in the past year has brought about staggering growth in mobile data consumption. While we were languishing at around the 100th position in mobile data consumption in 2016, we have achieved the number one position in less than three years. The past year also saw us become the second largest user of smartphones in the world. As per an Ericsson report, India had the world’s highest data usage per smartphone at an average of 9.8 GB per month in June 2019.
Further, the increased focus on BharatNet to improve rural broadband connectivity is giving a great impetus to the proliferation of broadband services.
With the creation of the 5G High Level Forum and the subsequent thrust on the implementation of its recommendations as well as those detailed in the NDCP, 2018, including the thrust on placing India on the global standardisation map through the development and promotion of a home-grown 5G standard known as LMLC (low mobility large cell), the country has started making progress on 5G.
What has been the impact of the key initiatives taken by the government?
T.R. Dua
The key initiatives taken by the government include Digital India, the BharatNet project and setting up of the 5G High Level Forum. The government also issued a clarification regarding inclusion of infrastructure providers as licensees for formulation and implementation of the RoW Rules, 2016, across all the states.
The Department of Telecommunications has unveiled the NDCP, 2018, for the next five-year period, from 2018 to 2023. The revolutionary policy aims at creating robust infrastructure through innovative policy measures, some of which are enhancement of scope to include active infrastructure sharing and passive sharing under the infrastructure provider category. The policy also envisages the launch of a broadband readiness index for states, with the aim of increasing competitiveness in telecom infrastructure creation among them. The project has been launched recently.
Rajan S. Mathews
Under the government’s BharatNet programme, 100,000 gram panchayats were connected through high speed optic fibre cable. The impact of the programme has been noteworthy. The internet not only made delivery of critical digital services to the remotest of villages easy but has also played a significant role in providing inclusive and all-pervasive economic benefits.
The government also took significant steps towards making India 5G ready. The 5G High Level Forum was constituted in collaboration with academia and other stakeholders. It is aimed at pushing participation in the process of defining global standards for the next generation of wireless network technology. The government also provided capital support for the establishment of 5G test beds currently under way.
T.V. Ramachandran
One of the key initiatives taken by the government has been the release of the NDCP, 2018 – a document which truly epitomises, in letter and spirit, the push towards creating a $1 trillion digital economy by 2022. Other initiatives include a thrust on 5G, availability of sufficient quantum of the right spectrum in the right band, implementing the Fibre First Initiative, focus on creating public Wi-Fi hotspots and liberalisation of the public Wi-Fi enablement policy, focus on satcom as mentioned in the NDCP to connect remote and far-flung areas, and boost to virtual network operators with multiple parenting being permitted.
While it is too early to comment on the impact of these initiatives, they are very crucial steps to bridge the rural-urban divide. Many of these efforts will create new investment opportunities and revenue streams and help reduce the sector’s financial burden.
What are the sector’s key challenges that remain unaddressed?
T.R. Dua
There is an urgent need for alignment with the central RoW Rules. So far, only 13 states have aligned their telecom infrastructure policies with the central rules. A few departments in states such as Rajasthan and Haryana have come up with circulars that override the tower policies aligned with the RoW Rules.
There is a need for a reduction in taxes and levies. Further, input tax credit (CENVAT credit), under the heading plant and machinery, must be available to tower infrastructure providers, and this will have a huge impact on the cost of services. Further, issues such as levy of property tax on telecom towers at different rates by various local authorities coupled with actions such as sealing of towers, disconnection of power supply, use of force, and damage to telecom sites, etc. are prevalent. The telecom industry is still awaiting benefits from the infrastructure status granted to it.
Rajan S. Mathews
Incapacitating hypercompetition leading to significantly squeezed margins, rising debt and falling revenues are some of the reasons behind the sector’s acute financial distress today. The sector is currently reeling under a cumulative debt of Rs 7.64 trillion with overall revenues falling to less than Rs 2 trillion. This was one of the key reasons why the industry witnessed a series of consolidations and market exits last year.
That said, telecom operators are now optimistic about the future. Emerging technologies such as internet of things (IoT), M2M and 5G are expected to open up new revenue opportunities for them.
Steps should be taken for 5G deployment with an impetus on taking more fibre to the towers so that a robust digital infrastructure is put in place for its expansion. Levies such as licence fees and spectrum usage charges should be reviewed and rationalised, and this, in turn, would further ease the burden on the telecom sector. Another industry concern that needs to be addressed is the practice of levying blanket penalties for certain violations.
Also, the government needs to take concrete steps in order to ensure availability of adequate spectrum for auction at a mutually beneficial price to realise equal benefits for the sector and the exchequer. Spectrum auctions are expected to take place by November 2019.
T.V. Ramachandran
First, the sector needs expeditious enhancement of broadband penetration to rural and remote areas. The second challenge pertains to the low speed of broadband, especially given the fact that 90 per cent of the traffic in the country is video content. The third challenge relates to the huge infrastructure roll-out difficulties that continue to plague the sector. While mobile broadband will be an important element of 5G, other infrastructure lines such as fixed line, public Wi-Fi and satcom will be as important. Thus, there is a need to look at 5G infrastructure as a complete bouquet of different infrastructure elements.
The fourth challenge is that of maintaining business viability while meeting the ever-increasing demand for enhanced affordability. The sector is already delivering one of the lowest mobile tariffs in the world while reeling under a huge debt burden. Most anomalously, the sector is also having to operate with one of the highest levels of duties and levies globally – about 35 per cent as against single-digit or low two-digit figures in comparable regimes.
The fifth challenge is to ensure successful 5G auctions. Rational reserve prices and a review of the auction methodology are needed to facilitate the fullest market participation. At Broadband India Forum, we have estimated the economic loss caused due to spectrum lying idle. Given that more than 1,300 MHz of radio spectrum remained unsold in October 2016 and that it has not been put to use since, indicates its unrealised potential. Applying the result of the ICRIER economic impact study, whcih reveals that a 10 per cent increase in teledensity leads to a 1.9 per cent increase in GDP, the financial cost of this idle spectrum can then be estimated at Rs 5.4 trillion, or over 160 per cent of the financial benefit of Rs 3.3 trillion from all spectrum auctions so far.
Sixth, there is a need for increased public awareness and improvement in digital literacy with the concurrent ability to use broadband services.
What is the sector outlook for the next one-two years?
T.R. Dua
5G is expected to be launched by the end of 2020. The growth in data consumption will grow manyfold due to the launch of new applications enabled by 5G and the proliferation of affordable smartphones. However, the launch of new applications would require the creation of ubiquitous and robust infrastructure, without which applications like connected devices and connected cars would not work. The deployment of small cell, Wi-Fi hotspots, poles and towers would therefore grow at an exponential rate.
Further, the government’s flagship programme to create 100 smart cities will require extensive use of information and communications technology applications.
Rajan S. Mathews
The NDCP, 2018, has set ambitious targets and, if they are met, 2022 will be a watershed year for the sector. Under its Broadband for All initiative, the government aims to make sure that every citizen has access to broadband, running at a speed of at least 50 Mbps, and has projected that by 2022, 10 Gbps connectivity will be provided at the gram panchayat level.
Over the next two-three years, the industry is expected to make rapid strides in the 5G domain. Implementation of 5G will require major ecosystem alterations with respect to spectrum usage, network infrastructure and devices, thereby necessitating significant expenditure by telecom companies. Spectrum harmonisation is also indispensable for a country like India, as it will not only enhance availability of adequate spectrum for 5G services, but will also reduce prices of telecom equipment to a considerable extent.
T.V. Ramachandran
The Indian digital communications market offers tremendous scope as half of the country’s population still has to be enabled with affordable high speed broadband and 70 per cent has to still be enabled with smartphones. The outlook for the sector over the next one to two years is positive.
The NDCP is firmly in place and the new government has put forward its first 100 days action programme, which is most encouraging. Spectrum auctions, rationalisation of spectrum prices, steps to reduce financial stress, 5G roll-out goals and RoW initiatives form part of the plan.
We will see the use of artificial intelligence and internet of things in various segments – health, transportation, safety and security, manufacturing and agriculture – and also the creation of jobs with the advancement of such emerging technologies. I also foresee great contribution from the telecom sector in the area of digital financial inclusion, with the rise of digital payments, especially the Unified Payments Interface.
“The launch of new applications would require creation of ubiquitous and robust infrastructure, without which applications like connected devices and connected cars would not work. The deployments of small cell, Wi-Fi hotspots, poles and towers would therefore grow at an exponential rate.”
T.R. Dua, Director General, Tower and Infrastructure Providers Association
“Over the next two-three years, the industry is expected to make rapid strides in the 5G domain. Implementation of 5G will require major ecosystem alterations with respect to spectrum usage, network infrastructure and devices, thereby necessitating significant expenditure by telecom companies.”
Rajan S. Mathews, Director General, Cellular Operators Association of India
“While mobile broadband will be an important element of 5G, other infrastructure lines such as fixed line, public Wi-Fi and Satcom will be as important. Thus, there is a need to look at 5G infrastructure as a complete bouquet of different infrastructure elements.”
T.V. Ramachandran, President, Broadband India Forum