In 2021, we saw certain crucial changes in telecom policy. Going forward, there should be less pressure on operators, given the rationalisation of adjusted gross revenue (AGR). The clearance for 100 per cent FDI should result in improved investment flows into telecom, and the manufacturing initiatives under the performance-linked incentive (PLI) should create a more robust value chain. In general, investors will witness a scenario of greater policy stability. This augurs well for the sector as it readies to explore new areas such as 5G, satellite internet and associated technologies.
In January 2022, Vodafone Idea Limited (Vi) decided to convert debt into equity, thus altering the industry dynamics. In competitive terms, the industry could effectively become a two-player space for a while. The move will also have some interesting long-term implications.
Vi’s conversion of debt into equity means that the Government of India is now its largest shareholder. On every possible operating and financial metric, Vi lags behind Reliance Jio and Bharti Airtel. The latter two have far larger subscriber bases, far higher ARPUs, higher growth rates, bigger balance sheets with much better debt-equity ratios, more revenue streams, etc. The consolidation in the sector has, however, allowed all operators to raise tariffs, which can help them improve their ARPUs and operating margins.
Vi continues to have enormous debt on its balance sheet although it has received a breathing space of four years. This means the operator will still need to raise large sums to continue its operations and is looking to raise considerable amounts. Vi will also face problems matching its capex to the better capitalised Reliance Jio and Bharti Airtel. This implies that it will struggle to hold on to its subscriber base, let alone convert subscribers into higher-ARPU data-centric users. Assuming Vi can retain its current subscriber base, it will need to approximately double the current ARPU to work its way out of the debt trap. Or else it will need to find either a white knight to take over, or opt for subsequent debt to equity conversions, which would increase the government’s stake again, after five years.
On its part, the government now has a direct stake in Vi and of course owns the ailing BSNL, which is the majority stakeholder in MTNL as well. Will it look to merge these entities or to tweak policy in such a way as to ensure these survive or thrive remains to be seen. This could have future implications for sector policy.
The rationalisation of the definition of AGR will put less pressure on telecom operators going forward and the changes in spectrum norms will also make it easier for operators. A major reform push has been centred around spectrum, with surrender clauses, 30-year payment periods, and the abolishing of spectrum usage charges. This helps create more policy certainty. It also lays out the new norms for the upcoming 5G auctions.
Allowing 100 per cent FDI will make it easier to invest. Telecom contributes about 7 per cent of FDI inflows and this could lead to a boost. Manufacturing schemes such as Atmanirbhar Bharat and PLI in telecom, networking products and semiconductors, etc., will certainly strengthen India’s presence in the global telecom and associated electronics supply chains.
This is important in the context of digitalisation of the country, which has been a policy thrust for a while. Digital India has become an imperative in the context of the pandemic, given the imposition of social distancing, work-from-home protocols, need for distance education, etc.
Overall, the pace of digitalisation of the Indian economy depends on the roll-out of 5G networks alongside associated technologies and applications. There were 99 countries and 14,643 cities worldwide with working 5G deployments at the end of the third quarter of 2020, more than a year ago. So, India is well behind the curve here and it must not fall further behind in the adoption of 5G.
Operators in India have conducted 5G trials. Bharti Airtel has partnered with Nokia to carry out trials in the 700 MHz band. Reliance Jio has successfully conducted trials on its indigenous 5G network. Nokia and Vi have also partnered to trial 5G services.
The 5G spectrum auctions have been delayed amidst fears that reserve prices were set too high. As of now, 5G pricing recommendations are expected from the TRAI in March and auctions for spectrum could occur in July-August 2022.
5G can bring in many benefits for enterprises once it is deployed. It could also lead to deep social transformations, with possible benefits for sectors such as education, healthcare, machine-to-machine communications and IoT, if it allows private networks and fixed wireless access broadband. Affordability will depend on spectrum pricing, and commercial launches are expected by end 2022 or early 2023.
There are several areas where policy focus is required with respect to 5G. There is an absence of a regulatory framework for small cells, a lack of availability of backhaul, and non-uniform implementation of right-of-way rules by states and municipal bodies. Clarification on policy in such areas would allow telcos to better harness 5G and quickly avail of its potential benefits.
For optimal utilisation, operators need sufficient interference-free spectrum in all the 5G spectrum bands. Pricing is obviously important. Policymakers need to consider the pragmatic use of private 5G networks, until there is full-scale public 5G. Otherwise, India will fall behind technologically given that more than half the world has had operational 5G networks for two years.
In global practice, spectrum for private 5G networks is allocated administratively with nominal charges. India, too, would benefit from the allotment of such nominally priced spectrum in globally harmonised International Mobile Telecommunications bands. The government needs to open up bands such as 6 GHz and 60 GHz for private networks to be at par with best international practices. This would also drive the PM-WANI Public Wi-Fi policy and “atmanirbharta”.
The scheme targets the creation of 10 million public Wi-Fi hotspots by 2022 as per the National Digital Communications Policy (NDCP). This would create demand for new business segments and also for more hardware and software. It could generate business and employment opportunities at the SME level in rural areas. However, a policy framework for efficient implementation is required.
Satellite broadband communication is another new area where there is a lot of promise. The government has clearly demonstrated its intent to facilitate the use of satcom. For example, there is the draft spacecom policy; liberalisation of the Telecommunication Engineering Centre specifications for the ground satellite segment, and approval of the Digital Communications Commission to permit the use of satcom for cellular and Wi-Fi backhaul.
Satellite networks will allow the roll-out of services in areas that are geographically difficult to link terrestrially. This is of considerable importance in India given the difficult terrain across the Northeast, the Himalayas, the Western Ghats and the Nilgiris.
Citizens in these areas cannot fully participate in Digital India and avail of government services as well as private initiatives. The declaration that the “right to internet” is a fundamental right under Article 21 would remain just a paper promise unless these regions are well connected, and satellite broadband is the most viable solution. However, policy gaps in this area have to be ironed out. There are critical decisions to be made about specific wavelengths to be reserved for satellite, rather than for dual use. It is also important to resolve ambiguities in policy regarding the value chain for satellite operators. Can satellite operators use any satellite? Can they offer services to both individual entities and commercial entities?
The newly formed Satcom Industry Association is advocating for the quick resolution of such questions. Otherwise, this would retard satellite roll-outs and impede plans by Elon Musk’s Starlink, Airtel’s partnership with OneWeb, the Tata satellite initiative, etc., and therefore delay progress across the entire satcom value chain.
The pandemic has led to digital penetration becoming an even higher priority. It is clear that better digital coverage across the country is a necessity for growth in economic activity during an ongoing pandemic. The last two years have highlighted big gaps in supply chains, as well as policy ambiguities. India has a big missing link in terms of semiconductor production, and it should ideally set up manufacturing bases in these areas. The PLI scheme addresses these issues, but this is only the beginning and must translate into results on the ground. More clarification on tax treatments and easier bureaucratic processes will all be required to drive manufacturing uptake.
The potential benefits of a new era of 5G are huge. Enhanced mobile broadband applications will gain momentum and this would create new revenue streams. Once better machine-type communication and ultra-reliable low latency communications become mainstream, the telecom industry would be a gainer. The positive externalities would feed into a better connected enterprise system, which could deliver higher returns and better margins for all sorts of businesses. The potential for a brighter future where telecom contributes an even higher share of GDP and enables faster growth across the economy is apparent. It is now up to all the stakeholders and policymakers to ensure that this potential is fully realised.