Trends and Outlook

Data to drive new growth in the sector

The Indian telecom industry continued on its growth path through the past year, adding about 58.03 million subscribers between May 2015 and May 2016. Rural teledensity witnessed significant improvement, rising from 48.6 per cent to 51.75 per cent during this period. Meanwhile, in urban areas, teledensity increased from 149.7 per cent as of June 2015 to 152.34 per cent as of May 2016. The number of broadband subscribers in the country witnessed a significant jump, rising from 108.85 million to 159.76 million during the June 2015-May 2016 period.

On the policy and regulatory front too, a number of positive developments were witnessed. Among the most encouraging policy moves was the introduction of spectrum sharing and trading norms which led to significant consolidation moves in the industry. The government tried to establish a framework for over-the-top players, leading to a debate on the issue of net neutrality.  However, a conclusive policy on the matter is yet to emerge. Apart from this, the Telecom Regulatory Authority of India (TRAI) increased its emphasis on the quality of service (QoS). It also released a number of consultations on matters related to the review of QoS benchmarks, cloud computing, provisioning of broadband through public Wi-Fi networks and review of interconnection usage charges. These consultations are likely to provide further clarity to the industry on key regulatory issues.

However, clarity on certain legal issues is yet to emerge.  For instance, the Vodafone retrospective tax issue remains unresolved despite several discussions between the government and the operator. Second, the tussle between the regulator and operators over the call drop issue created a sense of policy uncertainty. While the Supreme Court struck down TRAI’s compensation mechanism for call drops, the overall atmosphere remained tense. Legal issues combined with the lack of regulatory clarity on call drops may have been a key reason behind the fall in foreign direct investment (FDI) inflows into the telecom sector (including radio paging, cellular mobile and basic telephone services). FDI in the sector fell from Rs 173.72 billion in 2014-15 to Rs 86.37 billion during 2015-16. The share of telecom in the overall FDI flowing into the country also decreased from around 9 per cent to 3 per cent.

Meanwhile, the government has announced that the next round of spectrum auctions, said to be one of the biggest ever, will begin on September 29, 2016. The industry is gearing for this spectrum sale as operators look to tap into the emerging data opportunity.

Indian Infrastructure takes a look at the key trends in the telecom sector over the past year and the way forward…

4G gains traction

  • Among the most notable developments in the Indian telecom sector was the widespread launch of 4G services. 4G finally picked up pace during 2015-16 as most operators went live with their services in select circles and pockets in the country. The successful 4G launches during the past year were driven mainly by the government’s de-cision to liberalise spectrum, which allowed operators to offer 4G services by utilising airwaves in the 1800 MHz band.
  • Bharti Airtel and Idea Cellular saw the maximum activity in this regard. While Airtel’s
  • services are available in 350 towns and cities, Idea has been able to expand its coverage to about 750 towns across 10 telecom circles. Vodafone, too, launched its 4G services, albeit on a smaller scale. Reliance Communications, which was hitherto offering only 2G, decided to shut down its CDMA business and jump onto the 4G bandwagon. riding on Reliance Jio Infocomm Limited’s (RJIL) network. It plans to roll out 4G services extensively in the coming months.
  • Operators have been aggressively launching high speed data services in anticipation of RJIL’s commercial launch. While RJIL has been soft launching its 4G services for various customer segments, it is yet to go live commercially. Post the launch, competition in the 4G market is expected to become even more intense.

Data tariff wars

  • Increasing competition in the market is evident from the data tariff wars that have already begun. A few years ago, when voice was the mainstay of Indian telecom operators, the industry had witnessed intense competition in terms of voice tariffs. Player after player cut prices, with the result that India had one of the lowest telecom tariffs in the world. A similar trend is now being seen in data tariffs. Airtel was the first operator to slash its data rates, reducing tariffs for its prepaid customers by up to 67 per cent. Idea followed suit and cut prices by 67 per cent for both 3G and 4G packs as well as for both prepaid and postpaid customers. Vodafone, too, announced a 67 per cent increase in data benefit available on its various 3G/4G packs.

Consolidation in the industry

  • Most of the Indian telecom operators have been in a stressed financial position for the past few years. This was primarily on account of huge investments committed by operators in the expansion of their 2G and 3G services. High network roll-out costs coupled with low tariffs led many operators, especially the smaller ones, towards a weak financial position. Smaller operators especially have begun to feel the heat of the competition.
  • With the government paving the way for consolidation through spectrum trading and sharing norms, the industry witnessed significant merger and acquisition (M&A) activity during the past year. The key M&A deals in the sector were Bharti Airtel’s acquisition of Videocon Telecom’s spectrum in six circles, Reliance Communications’ merger with Sistema Shyam TeleServices Limited, and Vodafone’s acquisition of YOU Broadband.
  • Another key deal was the American Tower Corporation’s acquisition of a majority stake in Viom Networks for a total cash consideration of Rs 76.35 billion. This marked further consolidation in the Indian tower industry.

BharatNet picks up pace

  • The BharatNet project, which has been facing severe delays for the past few years, finally posted some positive news. The government has now divided the implementation of the programme into three phases and is planning to rope in the private sector in its implementation. Under Phase I, 100,000 gram panchayats (GPs) will be connected by March 2017. Phase II, which is to be completed by December 2018, aims at connecting the balance GPs through an optimal mix of underground and aerial optic fibre cables (OFCs), radio media using existing and new towers and satellite media. The final phase involves the setting up of a state-of-the-art network for 5G services and internet of things with underground OFCs in a ring architecture, to be completed by 2023. As of June 2016, tenders for about 93,756 GPs have been finalised and work has already started in 84,834 GPs. Further, pipes have been laid in 64,000 GPs, while OFC has been pulled in 53,113 GPs. In terms of length, 148,986 km of pipes have been laid and 123,373 km of OFC has been pulled. In addition, several states have already begun utilising the network to provide e-governance services to citizens.

Outlook

  • It is clear that the telecom market in India is witnessing rapid uptake of data services. In fact, data revenues already contribute significantly to operator revenues. Most large operators have established a strong foothold in the 3G market, resulting in a significant uptake of these services. 3G device penetration in the country increased to 32 per cent in 2015. In the metro circles, it has already touched 50 per cent.
  • While operators continue to focus their on-ground investments in deploying 3G networks, 4G has also gained traction. According to industry analysts, 4G is expected to have a pan-Indian presence in 2016 with new and incumbent operators providing 4G long-term evolution coverage in all critical markets. Going forward, mass uptake of 4G services is expected across most cities and towns as operators expand their coverage. However, much will depend on the evolution of the 4G ecosystem. While the price differential between 3G- and 4G-enabled devices is narrowing, the limited localised content development and its availability continue to hinder uptake. Despite this, the industry is witnessing heightened competition, especially as RJIL (with a pan-Indian presence) prepares to launch its 4G services commercially. With the competition becoming stiffer, tariffs at which 4G services are being launched could have a negative impact on operator investments in these networks.
  • Meanwhile, the upcoming spectrum auctions and the consolidation being witnessed in the industry are expected to change industry dynamics. Suffice Suffice it to say that the Indian telecom industry is looking at exciting times ahead.

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