The Indian telecom industry witnessed many ups and downs during the past year. On the one hand, the government took concrete steps to address some long-pending issues such as right of way (RoW), spectrum harmonisation and a unified tax regime in the form of the goods and services tax (GST). On the other, the entry of a new player intensified competition and negatively impacted the profitability of key players. Industry leaders share their views on sector progress, key policy developments, challenges that remain unaddressed and the future outlook…
What has been the progress in the telecom sector in the past one year?
The Indian telecom sector has witnessed phenomenal growth during the past one year. The year was marked by significant developments such as 4G roll-outs across the country, which instigated the deployment of advanced infrastructure and technology. The tower industry has played a significant role in expanding the reach of affordable telephony. As the number of mobile telephone subscribers have increased to more than 1.2 billion, the number of telecom towers and base transceiver stations (BTSs) have also increased to 0.5 million and 1.5 million respectively. Further, tower roll-outs are currently increasing at a rate of 3-5 per cent on a year-on-year basis. The concept of tower sharing has also been critical for the growth of the industry and has ushered in several advantages in terms of cost economics, aesthetics, service access, safety and quality of service.
Some of the key trends are:
- Small cells/In-building solutions (IBS): The deployment of IBS and microcells for enhancing capacity will drive significant the demand for telecom infrastructure.
- Network coverage: The roll-out of 3G and 4G sites beyond cities by all major operators will be a key driver of network coverage.
- Fiberisation: As only 20-25 per cent of the tower sites in India have optic fibre connectivity, the country requires 100 per cent fiberisation to support upcoming technologies.
- Public sector investment: The Smart Cities Mission, Digital India and BharatNet initiatives will be key enablers for investments in fibre infrastructure and broadband. This will also open up huge business opportunities for infrastructure providers (IP-1s) as these companies work on the infrastructure sharing model with all telecom service providers (TSPs) on a non-discriminatory and transparent basis, extending benefits such as efficient use of capex, improved aesthetics, faster roll-outs, energy savings, and better coverage quality.
Rajan S. Mathews
The Indian telecom sector has taken huge strides during the past year. The permeation of data and data-based services is now growing exponentially, due to the expanding coverage of 3G/4G services. Further, more than 135 million subscribers were added, taking the total to 1.19 billion subscribers as of March 2017. The sector also witnessed a near doubling of broadband subscribers from 149.75 million to 276.52 million during the same period. Moreover, teledensity increased by almost 10 per cent and reached 93 per cent, while the number of internet users increased by almost 80 million, reaching 422 million by end-March 2017. More than 94 per cent of the internet users now access the web via wireless devices. This is leading to significant growth in mobile application-based services including m-banking, m-education and m-health.
Meanwhile, the industry witnessed the launch of Reliance Jio Infocomm Limited and its highly competitive tariffs and offerings during 2016. However, these innovative offerings and the increased competition wreaked havoc on the sector. The average revenue per user (ARPU) decreased to Rs 104 during the quarter ended December 2016 from Rs 121 during the quarter ended September 2016, registering a 12 per cent decline. The ARPU has fallen by as much as 7 per cent during the past year, marking one of the highest declines in ARPU in the world.
The most significant achievement of the telecom sector during the past year has been the entry of a disruptive player, which has taken the market by storm due to its aggressive pricing strategy and digital approach. The impact of this new entrant has been such that other players have been forced to drastically reduce their tariffs, enhance their service offerings and take measures to ensure customer satisfaction and retention. This has led to increased 4G penetration, bringing us at par with global technology advancements. Further, it has also brought about staggering growth in mobile data. The average data consumption has increased four times from around 250 MB per month to over 1 GB per subscriber per month over the past six months. While we were languishing at around the 100th position in 2016; in just six months we have achieved the number one position in data consumption in 2017. Further, India also overtook the US to become the second largest user of smartphones in the world during the past year.
Some of the other highlights are:
- The shifting focus on digital payments and the need to increase financial inclusion due to the government’s demonetisation move.
- The increased focus on the Digital India and BharatNet programmes to improve rural connectivity, giving greater impetus to the proliferation of broadband services.
- In-depth consultations undertaken by the Telecom Regulatory Authority of India (TRAI) on important issues related to licensing, spectrum and quality of service requirements for machine-to-machine (M2M) communication, draft guidelines for M2M service providers and the increased focus on internet of things (IoT) as one of the principal drivers of the 5G policy.
- The government’s emphasis on launching a long- term backhaul spectrum plan and policy.
- Initiatives taken to bring India at the forefront of the global 5G ecosystem.
- The launch of GST on all services including telecom.
- The launch of payments banks, which is expected to play a key role in financial inclusion.
- The acceptance of e-Aadhaar authentication, adoption of Aadhaar-enabled payment systems and the launch of Aadhaar applications (BHIM, etc.) for mobile subscriptions.
- The emphasis on defining and improving minimum wireless broadband data speeds and labelling them to enable easier and transparent choice for consumers.
What have been the most impactful policy developments over the past year?
The most impactful policy development during the past year has been the RoW policy notified in November 2016. The policy envisages features such as single-window clearances, a defined time period for deemed approval and one-time nominal administrative fees, etc. However, the government has excluded IP-1s from availing of the benefits of the policy. This is a retrograde step which will force TSPs to invest individually in their respective infrastructure and increase the cost of services. To this end, TRAI has requested the Department of Telecommunications (DoT) to revisit the RoW policy and include IP-1s under it, as the latter have contributed significantly towards developing a robust telecom infrastructure and would do so in the future as well. Moreover, in its recommendations on IBS and public Wi-Fi services, TRAI has recommended that IP-1s undertake the installation of telecom infrastructure across the country.
Rajan S. Mathews
A key policy reform was the introduction of GST. Though there are some difficulties in implementing it in its present form, it is the single biggest reform that India has undertaken in a long time. Other policy changes during the past year were the introduction of Aadhaar-based electronic know your customer (e-KYC), harmonisation of spectrum, streamlining of ROW rules, reduction in spectrum usage charges to 3 per cent and simplification of the assessment procedure for low-power BTSs. Some reforms like the spectrum sharing and trading rules have led to a huge impact on the sector and have resulted in significant savings for the industry.
We look forward to TRAI’s recommendations on key issues like internet telephony, free data and net neutrality, and the ease of doing business among others that the regulator has started consultations on.
Policies for restoring the financial health of players are of paramount importance, as the sector is still reeling under an enormous debt burden of about Rs 4.5 trillion. To this end, the government recently constituted an inter-ministerial group consisting of secretaries from the telecom, IT and finance ministries to look into the matter and suggest measures to improve the overall health of the sector. Further, the government’s announcement to come up with a new telecom policy to address policy-related and other issues is also a welcome move in this direction.
What are the key challenges that remain unaddressed?
As broadband penetration in rural India is low, there is a need for proliferation of broadband in these areas. However, “hand-holding” people residing in these areas to make them computer literate and familiarising them with various broadband applications is a major task.
Although the government is taking the necessary action for the timely implementation of the BharatNet project, the lack of coordination among stakeholders remains a challenge. While the government can lay optic fibre cables and connect district headquarters, the most important role of providing last-mile access needs to be played by domestic entrepreneurs. To this end, we can take the support of cable operators in villages for establishing networks and ensuring last-mile connectivity.
There are several challenges pertaining to the tower industry that remain unaddressed. Some of these are:
- Restriction on the location of tower sites.
- High tax incidence on telecom towers and multiple levies imposed in the form of registration/sharing/renewal fees.
- Multiplicity of policies by local bodies and municipal corporations.
- Delays in obtaining clearances and the absence of a single-window clearance mechanism.
- Requirement of multiple no-objection certificates from various departments.
- Citizens’ fear related to electromagnetic field radiations emanating from telecom towers, which encourages local bodies to take coercive action.
- Difficulty in the acquisition of new sites or shutting down of operational sites.
- Retrospective implementation of state-specific tower policies.
- Non-availability of government land and buildings.
- Complicated, cumbersome and time-consuming procedures.
- Coercive action taken by authorities such as shutting down of operational sites or site sealing.
- Misplaced concerns regarding structural safety and integrity.
- Erratic or non-availability of power supply.
Rajan S. Mathews
The key challenge that remains relates to the financial health of the sector, which currently has a cumulative debt of Rs 4.6 trillion. The ability to manage the rising debt is becoming increasingly difficult for the industry. Industry revenues have also declined substantially. Further, operators have to pay more than 30 per cent of their revenues to the government in the form of taxes and levies like spectrum usage charges and licence fees. The government needs to work on reducing these taxes and levies, to improve the sector’s financial health.
Further, the GST rate of 18 per cent imposed by the government was a huge disappointment for the industry. In such a scenario, it becomes difficult for telecom companies to invest in new technologies and services and move forward at the pace required for ensuring growth.
The biggest challenge is the expeditious enhancement of broadband penetration which is currently quite low. We also lag way behind our peers and rank low in the global order. Unless this is improved, our socio-economic progress and the vision of Digital India are under serious threat. As the government has been taking giant strides to overcome spectrum deficiency, it is expected that we will soon be better positioned.
The second challenge relates to the huge infrastructure roll-out difficulties that continue to plague the sector. Though DoT has taken a step forward by issuing the gazette notification for RoW rules during November 2016, local bodies, municipalities and state governments are still not amenable to their implementation.
The third key 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. Further, it is also operating under one of the highest levels of duties and levies globally, which are equivalent to about 30 per cent as against single-digit or low two-digit figures elsewhere.
Finally, the need for increased public awareness and ability to use broadband services is also a challenge. To this end, TRAI has rightly adopted a highly localised approach for providing content, applications and affordable access such as the shared use model. Further, regional content development also needs to be strongly incentivised. The government and the regulator could play a key role here.
What is the sector outlook for the next one-two years?
In order to ensure the success of the government’s Digital India initiaitve, all stakeholders need to follow a collaborative approach. Further, some of the factors that can help in proliferating low-cost broadband services are:
- Allowing infrastructure sharing among companies. This will not only help in the optimum use of the already laid network but will also bring down the cost of internet services.
- Simplifying existing regulations and reconsidering the imposition of licence fees on internet and broadband services is also necessary as these levies increase the cost of internet, which is against the policy of Digital India.
- Increasing the domestic availability of digital and local content can also increase the speed of broadband, which will help people residing in rural areas access entertainment, education, health services, etc. at a low cost.
As per industry reports, the demand for data is projected to increase 12-fold by 2020, and this will fuel the deployment of towers and tenancies in the country. Further, accelerated
network investments will drive revenue and tenancy growth for tower companies. Greater clarity on government policies will contribute to ease of doing business in the sector. The tower industry will also witness more mergers and acquisitions in the future.
Meanwhile, the success of the government’s flagship programmes such as Digital India, the Smart Cities Mission and the Right to Broadband depends completely on the establishment of a robust telecom infrastructure. These programmes will open up a gamut of opportunities for IP-1s for deploying IBS, Wi-Fi hotspots and microsites, and undertaking fiberisation of backhaul networks.
Rajan S. Mathews
India is the second largest telecom market and the fastest growing market in the world. In the future, the industry will witness consolidation, given the current state of play and financial stress. Further, the number of smartphone connections are expected to increase from an estimated 451 million at present to 629 million by 2019. This is expected to take the smartphone penetration in the country from 40 per cent at present to 51 per cent.
In addition, the country will witness growth in the IoT domain. Another major development expected is the growth in mobile and digital payments, which will finally surpass physical card payments as the predominant non-cash payment mode. Owing to the growth in mobile data traffic from 150 PB in 2015 to 1,700 PB by 2020, the mobile payment sector is expected to grow from Rs 5 billion at present to Rs 172.32 billion by 2021.
As mobile connectivity and data services have played a pivotal role in bridging the digital divide and moving India towards a truly equitable and democratic nation, the telecom industry deserves urgent and immediate intervention to encourage policy and regulatory stability, and facilitate growth, innovation and investment. To this end, the industry remains committed to work for a fully connected and digitally empowered India.
Owing to the current data explosion and increasing 4G and smartphone penetration, the outlook for the telecom sector looks positive. However, sector growth will be strained over the next few years due to disruptions caused by the entry of the new player. Further, future prospects for the sector could be inextricably linked with the potential of and performance in the broadband segment. With 1 billion citizens waiting to be broadband connected, spectrum deficiencies being overcome, difficulties in rolling out fibre network and towers nearing resolution and the enormous opportunities from Digital India, the potential of broadband is truly remarkable. However, by putting in sufficient effort, we might accomplish global parity in the next five-seven years, though the great take-off could happen in the next one-two years because RoW challenges are expected to be resolved as state governments align their processes with the central policy.
Other major prospects are the growth of 4G as well as the emergence of 5G and the growing adoption of M2M and IoT in various segments such as health, safety and security. Further, the smartphone market also offers great market potential as half the population is yet to be enabled by mobile phones while 70 per cent is yet to be enabled with smartphones. The sector is also set to contribute significantly in the area of digital financial inclusion by promoting the use of digital payments.
On the whole, due to ongoing market consolidation and rising government interest in pulling the sector out of financial duress, the financial health of the sector will improve significantly while the vibrancy of competition will remain high.
“A key policy reform was the introduction of GST. Though there are some
difficulties in implementing it in its present form, it is the single biggest
reform that India has undertaken in a long time.”
Rajan S. Mathews, Director General, Cellular Operators’ Association of India
“The success of the government’s flagship programmes such as Digital India,
the Smart Cities Mission and the Right to Broadband depends completely on
the establishment of a robust telecom infrastructure.”
T.R. Dua, Director General, Tower and Infrastructure Providers Association
“The most significant achievement of the telecom sector during the past
year has been the entry of a disruptive player, which has taken the market
by storm due to its aggressive pricing strategy and digital approach.”
T.V. Ramachandran, President, Broadband India Forum
“Although the government is the taking necessary action for the timely
implementation of the BharatNet project, the lack of coordination among
stakeholders remains a challenge.”
Rajesh Chharia, President, Internet Service Providers Association of India