The past year has been an eventful one for the telecom sector. While the advent of the Covid-19 pandemic provided a major fillip to the uptake of digital services, the Supreme Court’s recent verdict, rejecting telcos’ plea for a recalculation of adjusted gross revenue (AGR)-related dues, dealt a big blow to their finances. Although the move is likely to stretch out the sector’s recovery period, the escalating demand for digital connectivity will help the industry identify new growth areas. Sector experts comment on the key developments in the sector…
What has been the progress in the telecom sector in the past one year?
The Indian tower industry has laid a strong foundation of growth for the telecom sector and has supported the sector in keeping pace with fast-paced technology advancements. During 2007-2020, the number of towers more than doubled at a compound annual growth rate (CAGR) of 7.1 per cent, to reach over 600,000 towers.
The Department of Telecommunications (DoT) is further targeting a combination of 100 per cent broadband connectivity in villages, 55 per cent fiberisation of mobile towers, average broadband speeds of 25 Mbps, and 3,000,000 km of optic fibre roll-outs by December 2022. Moreover, the government has emphasised bolstering India’s domestic telecom manufacturing capacity. The union cabinet has also given its approval to introducing the production-linked incentive (PLI) scheme in the telecom and networking products sector to enhance India’s manufacturing capabilities and exports.
Due to consolidation in telecom, the tower industry faced tenancy exits in financial years 2018 and 2019. However, tenancy levels started improving in financial year 2020-21 and they are likely to be sustained in the future. In case of no further consolidations in the telecom industry, this tenancy ratio, at the overall industry level, is expected to stabilise at the current levels of 1.3-1.5 times.
Lt General Dr S.P. Kochhar
The telecom sector has witnessed enormous disruption, powered by technological advancements, in the past one year. New-age technologies such as 5G, internet of things (IoT), augmented reality (AR), virtual reality (VR), machine learning and artificial intelligence (AI) are about to blend in with our lifestyles and become a part of our everyday life.
With the onset of the pandemic, the world witnessed an abrupt overnight shift towards the digital ecosystem. Today, we are speaking of a complete digital revolution, backed by 5G technology, which can revolutionise the way we live, play and work.
The most significant highlight of the sector in the past few years has been its evolution into “digital communications” by adopting a fully digital approach, encompassing a much larger ecosystem of technology services and solutions for users. While the proliferation of 4G continues, the sector has its eyes keenly set on 5G, with the spectrum auctions expected to take place by mid-2022. While 5G trials are still under way, the sector has already forayed into developing the necessary infrastructure, technology and business use cases as required for its deployment as soon as permitted. The setting up of indigenous 5G test beds as a multi-institute collaborative project is a positive step towards enhancing national capability in telecom technology, developing indigenous intellectual property and giving a fillip to Indian telecom manufacturers. Moreover, service providers have started making massive efforts towards developing India-specific solutions for future 5G network deployment. Indigenous technology development and innovation have also advanced.
The government’s response and focus on developing a robust digital infrastructure to cater to the burgeoning demand and appetite for data has been especially helpful. The introduction of the PM-WANI scheme was a historic step towards large-scale deployment of Wi-Fi hotspots across the country. Further, the recent TEC (under DoT) Specifications for Interface Requirements for Fixed Satellite Services demolished the erstwhile artificial restrictions and modernised the situation by granting permission for the use of highly advanced satcom technologies, namely, high throughput satellites (HTS), all orbital categories of satellites, new spectrum bands (Ka, Q and other bands), modern antennas, etc., as well as removing caps on data speeds. This will enable cost-effective offerings from the sector soon. The Digital Communications Commission’s recent approval of the use of satcom for cellular and Wi-Fi backhaul represents another progressive and vital step forward for India. Approval of the public-private partnership route for the third phase of BharatNet is another appropriate decision by the cabinet as it could potentially help the project gain traction and impact at this critical stage.
Dr Mahesh Uppal
There has been steady growth in users and usage as well as available network capacity. The virtually complete liberalisation of the other service provider business has been widely welcomed. However, the movement on other fronts has been disappointing. Spectrum auctions failed, with no bids received above the reserve price and all 700 MHz unsold. There has been little progress on the auction of the 5G spectrum. There is a looming threat of a duopoly in the sector due to the uncertain fate of Vodafone Idea and state-run operators Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited.
How has the Covid-19 pandemic shaped the telecom sector? What are the trends that are likely to emerge in the post-pandemic world?
The Covid-19 crisis has not only highlighted the critical role of telecom infrastructure and digital applications for continued functioning of societies, but has also brought to our attention the digital inequalities that still exist between and within countries.
Significant improvements have been made to enable a digital transformation. These include the creation of digital infrastructure, electronic delivery of public services, financial inclusion and enhancing of digital awareness and literacy. However, there is still a lot to be achieved, and roadblocks such as poor infrastructure, low internet speed, lack of coordination among various government departments and taxation need to be removed to realise the full potential of the digital transformation.
Lt General Dr S.P. Kochhar
While the world was bearing the brunt of the pandemic, the telecom sector became the rescuer, the “enabler”. Dependency on mobile devices increased dramatically, with the sudden shift to the digital ecosystem.
The Covid-19 pandemic brought incredible policy support from the government in the form of PLI schemes to catalyse the progress of the telecom sector and make India a global telecommunications hub. The government allocated Rs 142 billion for telecom infrastructure in the Union Budget 2021-22. The sector also made significant investments in building robust and reliable communications infrastructure.
The future of the telecom sector in the post-Covid era is bright. The digital revolution that will be powered by 5G technology will boost the Indian economy and make the country a global digital powerhouse.
Although unfortunate, the pandemic has actually sped up the digital transformation of India in an unprecedented manner. Access to and the utility of numerous digital applications and e-commerce platforms, which have become an integral part of today’s daily affairs, have played a decisive role in enabling remote communications, operations, access to critical information and services, and continuation of normalcy in our lives to the best possible extent.
The Covid-19 pandemic changed the way people conduct their day-to-day activities, including the introduction of the norms of work from home (WFH) and virtual education. Further, many people stayed indoors due to lockdown restrictions, which is believed to have resulted in higher usage of video streaming applications, online games, etc. Coupled with the expansion in the 4G user base and the faster speed of 4G, both demand and consumption of data connectivity and services have been growing ever so rapidly.
With the spirit of collaboration between the government and the industry for the good of the economy at an all-time high, we believe that now is the time to review the technology solutions before us in order to take ubiquitous and high quality (both in terms of capacity and coverage) broadband connectivity to the new work locations such as homes. The focus on fibre-to-the-x (FTTx) and in-building solutions, leveraging the available E and V bands for fibre-like data transmission, widespread public Wi-Fi outreach and use of satcom for remote and rural areas, will be decisive factors in this regard.
Dr Mahesh Uppal
Fortunately, the telecom network infrastructure admirably withstood the pressure created due to the pandemic. As expected, usage, especially of over-the-top services, went up sharply.
“IP-1s will play a prominent role in the growth of the digital economy, Industry 4.0, and the successful implementation of government programmes.” T.R. Dua
What trends do you foresee in the ARPU levels of telcos? What impact will the Supreme Court’s recent AGR ruling have on the sector’s competitive structure?
The tariff hikes executed in December 2019, coupled with the consistent upgradation of subscribers from 2G to 4G and growing traction in data usage, have resulted in an increase in industry AGR over the last few quarters. Other factors contributing to the improvement in AGR were increased data usage, availability of cheaper smartphones and availability of content.
The industry ARPU, which was in the range of Rs 74-Rs 79 in the first three quarters of financial year 2020, increased to Rs 91 in the quarter ended March 2020 (sequential growth of 16.3 per cent), primarily backed by price hikes (up to 40 per cent) undertaken by telcos for prepaid users from December 2019 onwards. Subsequently, the ARPU continued at the level of Rs 90 for the next two quarters and crossed the Rs 100 mark in the quarter ended December 2020. ARPUs, however, are estimated to have declined to about Rs 96 in the quarter ended March 2021 due to the shift to the Bill and Keep regime (January 1, 2021 onwards) from the earlier interconnect usage charges regime. Subsequently, ARPUs for the financial year 2021 are estimated to have averaged Rs 96, an increase of 20.6 per cent on a year-on-year basis. The growth in ARPU, however, needs to be sustained for the betterment of the industry. The telcos aim to increase their ARPU levels to at least Rs 200 per subscriber per month. Thus, a 2x hike in ARPUs appears imminent during financial year 2022.
Dr Mahesh Uppal
With the decline in competitive pressure, one would expect a steady increase in tariffs and ARPUs. The Supreme Court’s decision has imposed a humongous new liability on the affected companies. The precarious condition of Vodafone Idea is terrible news for consumers, since robust competition is their best guarantee for low prices, superior quality and innovative services.
“Today, we are speaking of a complete digital revolution, backed by 5G technology, which can revolutionise the way we live, play and work.” Lt General Dr S.P. Kochhar
What are the key challenges that remain unaddressed?
- Gaps in infrastructure need to be addressed as we embark upon the journey to digital transformation with 5G as the driver.
- Rapid network expansion and densification will be needed to support the full range of 5G services for end users, enterprises, etc.
- Fibre connectivity is one of the key enablers of 5G, but there are gaps visible on the ground. Fibre connectivity of towers in India stands at 30-35 per cent in comparison to countries such as the US, China and Korea, where it is close to 80 per cent. There has been a big push from the government to increase the extent of fiberisation, but a lot of ground remains to be covered owing to the high cost of obtaining right of way (RoW), and the time it takes to obtain the approvals.
- TRAI has envisaged recommendations to enhance the scope of IP-1 registration and incentivise infrastructure sharing among operators, including sharing of towers, radio sites (BTS), antennas, transmission systems, in-building solutions (IBS) and small cells. In order to realise the cost saving potential of network sharing, there is an urgent need to approve the TRAI recommendations regarding the “Enhancement of Scope of IP-1 Registration” without any further delay.
- While DoT notified the Indian Telegraph RoW Rules in November 2016 and advised all states/union territories (UTs) to follow it, some states/UTs are still reluctant. Some key states such as Delhi, Gujarat, Tamil Nadu, Andhra Pradesh, Kerala and Telangana are yet to adopt the RoW Rules, 2016. Further, in states/UTs where the rules have been adopted, there are major implementation challenges at the district/local level as local bodies want to follow their own by-laws.
Lt General Dr S.P. Kochhar
The industry is under immense financial stress. It is important to understand that relief to bolster the financial health of the sector is the immediate need of the hour. Even though rural teledensity has grown immensely, there is still a major digital divide between rural and urban India. There has also been a delay in the execution of RoW rules. Hence, collaborative efforts from the centre, states, local bodies and TSPs are needed for the deployment of optical fibre cable, expansion of network reach, etc. Lastly, myths about electromagnetic field radiation obstruct the installation of towers and delay the timely roll-out of network infrastructure.
Some areas of improvement that may be addressed to uphold the telecom sector’s growth trajectory are:
- Augmentation of digital connectivity infrastructure to meet the challenges of tens of thousands of WFH agents, besides giving a thrust to the adoption of emerging technologies.
- Data speeds for mobile connectivity in India are well below international norms. India experiences download speeds of 12.16 Mbps in the case of mobile broadband and around 38.19 Mbps in the case of fixed broadband. The average download speed is way below the global average speed of 24 Mbps.
- With WFH becoming the new normal, there will be a shift from mobile broadband to fixed broadband. Hence, solutions that cater to this shift in traffic patterns and provide high quality services on a sustainable basis will become increasingly important in the future.
- A four-pronged strategy is required to handle the shift of traffic in the short term. First, FTTx implementation needs to go up and fibre-to-the-home (FTTH) needs to be introduced in every locality of India. Second, increasing the number of Wi-Fi hotspots can offer a much-needed break to TSPs by allowing them to offload cellular data on to Wi-Fi networks. This move will greatly reduce congestion on their existing burdened networks. Third, a liberal licensing policy and regulatory framework, which permits the use of modern satellite technologies in a technology-neutral manner along with adequate competition, operating under free and open market conditions, is the need of the hour. Fourth, TRAI had recommended that both the E and V bands be opened up in the country for acceleration of broadband penetration, and urged DoT to accelerate the process of offering these bands, in line with other technologically developed countries. The use of these millimetric wave bands in neighbouring countries has worked wonderfully over long distances, and can work for India as well.
Dr Mahesh Uppal
The timely allocation of spectrum at reasonable prices is a crucial challenge for a market such as India, which predominantly runs on wireless technologies. India needs substantial unlicensed spectrum (such as 6 GHz and V band), besides the limited amount available for Wi-Fi services. We also need a comprehensive review of the licensing regime to make market entry easier for smaller players, new technologies and innovative business models.
“The most significant highlight of the sector in the past few years has been its evolution into digital communications.” T.V. Ramachandran
What is the outlook for the sector for the next one to two years?
The growth of macro sites is expected to be modest in the coming years, largely driven by capacity expansion of data services for 4G in the immediate term, and later for 5G launch. Going further, the enhancement of scope for active infrastructure within IP-I registration would prepare towercos to embrace emerging opportunities in small cells, Wi-Fi, IBS, IoT, FTTH, etc. Further, as the economy grows, low-hanging revenue opportunities can come from capitalising the real estate rights with the infrastructure providers – opening growth avenues in advertisement, electric vehicle infrastructure, security solutions and traffic control, among others. By focusing on the right mix of competencies and business opportunities, the tower industry can drive the next infrastructure revolution.
Lt General Dr S.P. Kochhar
We are at the cusp of a digital revolution. In the coming years, the 5G dream will become a reality. For the telecom industry, 5G will be a game changer. It will disrupt the industry and enable a digital revolution in the country through the integration of 5G with emerging technologies such as IoT, AR, VR, robotics and big data analytics. The telecom sector will become the spine, the enabler, the catalyst, triggering lucrative exponential growth in other sectors. 5G will be paramount in pushing the adoption rates of new technologies such as IoT, AI, and AR/VR. As per available industry statistics, IoT in India will proliferate to touch 2 billion connections and yield revenues worth $11.1 billion over the next two years.
“Timely allocation of spectrum at reasonable prices is a crucial challenge for a market such as India, which runs predominantly on wireless technologies.” Dr Mahesh Uppal
The potential and prospects for the broadband sector are massive. Although we have more than 820 million internet connections, with about 780 million of them being broadband, in actuality, unique broadband subscribers are barely around 500 million, and are mostly in urban areas. So, the scope for growth remains almost twice that of the present status.
With the expected tsunami of data usage affecting both the access and backhaul networks, increase in fibre deployment will be paramount in the times to come. Against a target of 7.5 million km of fibre required to be deployed, we have only 2.68 million km deployed till date. Evidently, there is a huge opportunity ahead of us to achieve the benchmarks. However, commercial deployment of macro 5G networks is expected to take some more time and is perhaps likely to take place only in 2022-23, at the earliest. In the meantime, the use of private 5G networks may be permitted. Administering dedicated spectrum for private networks will help accelerate innovation and digital transformation of enterprises to Industry 4.0.
Both Wi-Fi and satellite communications are slated to play an important role in helping 5G reach its full potential. Besides, digitalisation is increasingly leading service providers to adopt new and emerging technologies such as virtualisation, software defined networking/network functions virtualisation, IoT, AI and blockchain. These are likely to play a significant role in automating networks.
Dr Mahesh Uppal
We can only describe the outlook as fair, unless, as mentioned before, the government bites the bullet on the reform of spectrum and licensing to make the market more competitive. The need for such reform is urgent.