Trends and Outlook

Tide begins to turn for the telecom industry

The past year was a significant one for the Indian telecom sector. The industry finally achieved a rational industry size as the market consolidated into a three-plus-one structure. Telcos started exploring new strategies to improve their revenues and business prospects. Further, operators continued to infuse capital into network roll-outs despite shrinking margins and mounting debt.

The key highlight was the release of the National Digital Communications Policy (NDCP), 2018, which envisions massive investments of around $100 billion and puts the spotlight on fibre and satellite communications as the key means to achieving ubiquitous connectivity. Further, the new policy lays thrust on the expansion of next-generation technologies such as 5G, artificial intelligence (AI), internet of things (IoT), cloud and big data.

On the network front, 5G became the buzzword, with the government lending its weight to a rapid roll-out, in line with global timelines. Coupled with technologies such as IoT and AI, 5G holds the key to the success of government programmes like Digital India and the Smart Cities Mission.

On the flip side, the industry continued to be under severe financial stress, with its collective debt growing to about Rs 8 trillion. This compelled the incumbents to explore new innovative revenue streams and monetise their assets to deleverage their balance sheets.

Indian Infrastructure takes a look at the key developments that shaped the telecom sector during the past year and the way forward…

  • Continued data explosion: The exponential growth in mobile data remained a silver lining amidst the ongoing financial turmoil in the sector. The pace of 4G and voice over long term evolution roll-outs was exemplary. Besides the expansion of telco networks, the increase in over-the-top platforms and social media networks and the adoption of video services and other rich multimedia services continued driving data uptake. The public Wi-Fi space too evolved significantly, with data services now available in various public places, even on trains. A key highlight was the government’s notification of the in-flight and maritime connectivity rules in December 2018 that would enable users to access data during air and sea travel.
  • 5G emerges as a buzzword: The next big leap in the broadband segment is the move towards 5G. Key industry stakeholders have taken many initiatives to lay the foundation for a smooth 5G roll-out. For instance, during the first quarter of 2019, Samsung India announced that it was working with the Department of Telecommunications to conduct large-scale 5G trials. The India Mobile Congress 2018 showcased the country’s readiness for 5G and positioned it as a global telecom hub for investments in next-generation technology. During the event, industry stakeholders such as Airtel, Nokia, Ericsson, Jio, Huawei, Qualcomm and Samsung demonstrated live 5G use cases, for instance, driverless cars and drones. The government was also actively involved in the 5G domain. It constituted a high-level forum on 5G that submitted its recommendations on spectrum, regulation, awareness, use cases and trials for 5G.
  •  Towercos step up their game: Towercos, like other players in the telecom value chain, have placed big bets on data growth. The industry reached a milestone with the installation of 0.5 million mobile towers and 2 million base transceiver stations in November 2018, according to the Cellular Operators Association of India. Further, declining profitability from the traditional tower tenancy business pushed towercos to explore new business avenues. Many tower companies transitioned to becoming holistic network service providers and ventured into new areas such as small cells, distributed antenna systems, in-building solutions (IBS) and Wi-Fi services for improving revenues. For instance, Smartx Services Limited, a wholly owned subsidiary of Bharti Infratel, deployed IBS across airports, hotels and other buildings. Moreover, Bharti Infratel completed several pilot runs for offering small cell solutions and is hopeful of undertaking large-scale deployment in the future. The smart cities domain also opened up new business opportunities and revenue streams for towercos. In August 2018, Indus Towers entered into a public-private partnership with the New Delhi Municipal Corporation to install 55 smart poles, which will provide Wi-Fi access, live CCTV monitoring, LED lighting and air quality information. Further, Indus Towers completed the installation of 50 intelligent poles across the Vadodara smart city in December 2018.
  • Fibre focus: During the past year, the government, operators as well as independent fibre companies laid emphasis on scaling up the fibre network. The government announced that it was aiming to increase the fibre backbone from 1.5 million km at present to 2.5 million km by 2022 to support the roll-out of 5G services. Among operators, Reliance Jio fiberised 70 per cent of its towers in Delhi. In fact, 50-60 per cent of the sites leased from other operators have also been fiberised. Further, Sterlite Tech, a fibre company, is doubling its cable capacity to 33 million fibre km at a capital expenditure of Rs 3.2 billion. Moreover, the fibre-to-the-home (FTTH) space was also abuzz with activity. While operators such as Bharti Airtel and Bharat Sanchar Nigam Limited (BSNL) are already offering fibre-based broadband services, others like Jio plan to soon launch its FTTH services, Jio GigaFibre. In a bid to facilitate fibre rollout, the Tower and Infrastructure Providers Association held discussions with the Telecom Regulatory Authority of India in November 2018 for rolling out pilot projects for common ducts. While some pilots were proposed thereafter, the industry is still awaiting policy direction in this regard.
  • Consolidation in the infrastructure space: The year was also marked by key merger and acquisition deals in the infrastructure space. The most remarkable among these was the merger announcement of Bharti Infratel and Indus Towers. The merged entity, with over 163,000 towers across 22 circles, will be the largest tower operator in the world after China. Besides this, ATC India bought 10,200 stand-alone towers of Vodafone India and 9,900 stand-alone towers of Idea Cellular. Recently, a consortium led by the Brookfield Asset Management Company signed a deal to acquire Reliance Jio’s tower assets for Rs 252.15 billion. In the fibre space, Reliance Industries Limited acquired majority stakes in DEN Networks and Hathway Cable and Datacom Limited to strengthen its position in the FTTH space.
  •  Monetisation of infrastructure assets: Intense competition in the telecom services segment prompted many operators to resort to divestment and monetisation of infrastructure assets to drive investments. For instance, Airtel formed an independent fibre company in August 2018. Meanwhile, Jio hived off its tower and fibre assets into two separate units. State-run operator BSNL also hived off its tower assets business to form a separate subsidiary. Further, Vodafone Idea Limited spun off its fibre assets into a separate unit and has hired Bank of America and Morgan Stanley to help sell its fibre assets.
  • Thrust on emerging technologies: The telecom space is also witnessing increasing adoption of new technologies to significantly reduce the cost per bit and bring in efficiencies into the network. For instance, operators have started deploying massive multiple input, multiple output technology on their existing 4G networks. Further, telcos started exploring blockchain technology, particularly in areas such as data and content monetisation. Airtel is currently at the trial stage of blockchain deployment, while Vodafone, in partnership with IBM, is already at the proof of concept stage. Reliance Jio too is using its start-up accelerator JioGenNext to bring blockchain-related start-ups on board.

Outlook

Going forward, rationalisation of the industry structure is expected to create a relatively more stable pricing environment in the telecom sector. Operationally, while the wireless segment will continue to drive growth, the FTTH segment is set to emerge as the new battleground for telcos as Jio launches its GigaFibre services. On the network front, 5G will continue to be the catchword for the industry, with trials expected to gain traction during 2019. However, much would depend on the success of spectrum auctions that are slated for end 2019.

Net, net, the sector has started showing some early signs of a turnaround. The government must play a significant role in facilitating the recovery by monitoring progress under the new policy to help in steering the sector towards long-run stability and profitability.

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