Digital Priority

5G, satcom technologies key to post-pandemic growth

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.

Devangshu Datta

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