Growth Unplugged

The telecom sector emerged as one of the most essential services in India during the Covid-19 pandemic in 2020. With the onset of the pandemic, digitalisation accelerated across the sectors, which generated an unprecedented demand for reliable, high speed connectivity. The mass adoption of contactless solutions and virtual collaboration tools acted as a stimulus for the creation of new-generation networks and digital infrastructure. Among the transformational changes steered by the pandemic, the coming of age of fibre broadband was the most prominent one. Fibre emerged as an ideal medium to deliver high speed data as the country shifted to remote working and virtual education. Further, several new-age technologies such as cloud, virtualisation, automation, artificial intelligence (AI), augmented reality (AR) and virtual reality (VR), which have been trying to find ground in India, went mainstream during 2020 as businesses and individuals aligned with the new normal.

Meanwhile, Wi-Fi remained a key focus area for the government during 2020, as it amended the aircraft rules, allowing customers to access Wi-Fi services on flights. Besides, the focus on self-reliance strengthened with the launch of the production-linked incentive (PLI) scheme in June 2020 to boost electronics manufacturing in the country. While India was unable to join the global 5G club in 2020, telcos worked relentlessly on developing an India-focused 5G ecosystem during the year.

On the policy front, the Supreme Court’s decision on adjusted gross revenue (AGR) dues allowed telcos to pay their outstanding AGR dues in a staggered manner. The decision came as a breather for Bharti Airtel and allowed it to divert funds to modernise its networks to make them future ready. For the beleaguered Vodafone Idea (Vi), the judgment offered a new lease of life, but the relief is not enough for Vi to survive competition.

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

Telcos emerging as digital companies

The Covid-19 crisis acted as a catalyst for the Indian telecom operators, leading their transformation into digital companies. This also helped them in tapping the opportunities that emerged from the new work-from-home trend. Furthermore, the pandemic pushed the telcos to become sellers of service-enabling digital platform experiences to both end-user consumers and business-to-business customers, from being mere connectivity sellers. B2B or enterprise customers have become an important revenue source for telcos. While the level of technology adoption among enterprises has been rising over the past few years, the pandemic accelerated the speed of enterprises’ digital transformation, creating a strong demand for telco solutions. During the year, Vi announced its plans of transforming from a telco into a techco and partnered with several companies to build a dynamic portfolio of products and services for enterprises. Bharti Airtel too actively forged ties with global vendors to scale up its offerings for enterprise customers. All three private telcos also explored opportunities in the small- and medium-sized business segment.

Supreme Court’s AGR judgment

In September 2020, putting an end to the AGR issue, the Supreme Court granted telcos a 10-year timeline to pay their outstanding AGR dues. Telcos can now make payments in annual instalments till March 2031. The judgment provided aggrieved telcos such as Bharti Airtel and Vi some breathing space and a much-needed respite on the cash flow front.

Data traffic rockets

In 2020, the Covid-induced lockdown had a significant impact on data traffic, which increased to 12-15 GB per month per user, driven by the adoption of work-from-home practices, increased uptake of videoconferencing and enhanced use of over-the-top entertainment apps with high density (HD) content. The largest share of this traffic increase was absorbed by the fixed residential networks. Interestingly, the indoor bandwidth requirement seen in the past 10 months has been the highest ever. As a result, IBS (in-building solutions) such as small cells and Wi-Fi have seen a huge demand.

On the consumer side, the pandemic accelerated customer demand for digital technologies, channels, platforms and products. In the enterprise segment, the pandemic has forced companies to increase their spending on remote work enablement and cloud adoption. Increased work-from-home also positively impacted the demand for cloud-based virtual desktop infrastructure and collaboration tools.

Essential fibre

The Covid-19 pandemic underlined the importance of fixed broadband networks. Fibre is now being considered essential and an absolute necessity for supporting next-generation, data-intensive networks. Going forward, as work-from-home becomes mainstream, the industry will see significant telco investments in the fixed broadband space as they vie for a slice of this lucrative market.

Public Wi-Fi services

During 2020, Wi-Fi remained a key focus area for the government. In February 2020, the government amended the aircraft rules, allowing customers to access Wi-Fi services in flights, with permission from the pilot-in-command. However, the biggest development in the Wi-Fi space remained the launch of the Prime Minister Wi-Fi Access Network Interface (PM-Wani) project. The project, although envisaged back in 2017, finally received cabinet approval in December 2020. Under this initiative, public Wi-Fi networks will be set up by public data office (PDO) aggregators that would provide services through PDOs. As per the government, there would be no licence fee or registration for opening such PDOs.

Mainstreaming 5G and AI

In 2020, the government focused on mainstreaming 5G and AI technologies. In the 5G space, the government constituted working groups to explore the implementation of 5G across eight different sectors – agriculture, fintech, transportation, education, healthcare, water and sewage management, Industry 4.0 and smart grids. These working groups will study and submit a report on how 5G can be used in each of these sectors. For giving a major push to AI, the government launched the National AI Portal, which will work as a one-stop digital platform for all AI-related developments in India.

Focus on self-reliance

Another key development during the year has been the new impetus provided to the Make in India mission with the launch of the PLI scheme in June 2020 to boost electronics manufacturing in the country. The PLI scheme aims to reverse the trend of importing material for phones and encourage companies to set up manufacturing hubs in India and export to other markets. In October 2020, the Ministry of Electronics and Information and Technology approved proposals from 16 eligible mobile manufacturing companies, including global players such as Samsung and Foxconn, under the PLI scheme. Later, in November 2020, the cabinet gave its in-principle approval for bringing telecom and networking products under the ambit of the PLI scheme. These include products such as ore transmission equipment; 4G/ 5G, next-generation radio access network and wireless equipment; and access and customer premises equipment. To this end, the government is expected to give incentives worth Rs 121.95 billion over the next five years.

Growing data centre footprint

The Covid-19 pandemic, which facilitated the transition to a remote working model, also amplified the role of data centres to a whole new level in 2020. As per JLL’s estimates, India’s data centre capacity is expected to increase from 375 MW in the first half of 2020 to 1,078 MW in 2025. Further, the government is playing an active role in adding to the data centre growth. The increased government thrust to data localisation under the Personal Data Protection Bill has added to the demand for data centres. Under the proposed rules, the data generated in India must be stored within the country, protecting personal and financial data from foreign surveillance. This is expected to create a bank of opportunities for data centre players to set up shop in the country.

Outlook

Going forward, the growth that was propelled by the Covid-19 pandemic in India’s broadband market in 2020 will see an exponential uptick. Both the wireless and wired broadband segments will see further growth in 2021, as remote working and learning are likely to continue until a mass Covid-19 vaccination drive takes place. Further, 4G coverage expansion will continue to be a key priority for telcos. However, debt continues to remain the weak spot of the industry. As per ICRA, the debt levels are expected to increase further to Rs 4.7 trillion by March 31, 2022, owing to the accumulation of AGR liabilities and spending on spectrum auctions. This calls for government focus on facilitating the recovery of the sector by monitoring its progress under the new policy, and helping steer the sector towards long-term stability and profitability.

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