In recent years, the Indian telecom sector has undergone a significant transformation, evolving from a small voice-only 2G market to becoming one of the world’s largest data markets. The number of internet users has more than tripled from 250 million a decade ago to 850-900 million at present. Today, the average user in India consumes over 18 GB of data per month, the highest globally.
Since its launch in October 2022, the roll-out of 5G has been impressive, and this is reportedly the fastest launch globally. The 5G networks of Reliance Jio and Bharti Airtel now cover most of India, with around 130 million users already on the network. It is further projected that by the end of 2028, India’s 5G user base will reach around 700 million. Enterprise use cases for 5G are also being developed rapidly, which is set to transform the country’s digital landscape and impact various sectors.
The introduction of the new Telecommunications Act in December 2023 is an important milestone for the sector. Long overdue, the act replaces several archaic acts/laws and paves the way for progressive and modern legislation that aligns with the sector’s changing dynamics. The updated law is more compact and addresses pertinent issues – flexibility in spectrum allocation, mechanisms for improving right of way, establishment of common telecom infrastructure, expansion of the scope of the Universal Service Obligation Fund, introduction of a regulatory sandbox to accommodate emerging technologies and provisions for user protection against unsolicited advertisements. These are all steps in the right direction.
The financial results for April-June 2024 indicate that telecom service operations have indeed improved. The three private telecom operators – Vodafone Idea (Vi), Reliance Jio and Bharti Airtel – are all generating operating profits and maintaining reasonable operating margins. Even the weakest, Vi, has an operating margin of over 40 per cent. All three have implemented tariff hikes, which have been absorbed by subscribers.
Jio continues to lead the market in terms of revenue market share, subscriber additions (net 7.9 million) and subscriber transitions to 5G (with approximately 22 million users moving to 5G), bringing the 5G subscriber base to 130 million. However, its ARPU has flattened to around Rs 182. Airtel remains the market leader in terms of ARPU, which is registered at around Rs 211. However, it has seen comparatively weak subscriber growth, with a net increase of 2.3 million.
Vi is the most vulnerable of the three private operators. It has raised about Rs 200 billion through a follow-on public offering and preferential equity issues remain in a precarious position. It needs additional funds to strengthen its 4G network and launch 5G services. That said, Vi has managed to raise its ARPU and expand its 4G base. Even state-owned Bharat Sanchar Nigam Limited is gearing up to offer 4G services and work is on in full swing to bring these services to consumers soon.
Consolidation in the telecom services industry has been accompanied by consolidation in the passive infrastructure segment. There are, in effect, just two players in the telecom tower segment – Indus Towers and Brookfield. Brookfield has acquired both Reliance Jio’s tower and fibre assets and ATC’s tower assets in India. The outlook for the industry remains positive, with growth being driven by 5G. The roll-out of 5G is ongoing for Jio and Airtel, while Vi is preparing to launch its 5G services soon.
In a significant move aimed at facilitating the seamless deployment of 5G in India, the Department of Telecommunications (DoT) has introduced the Indian Telegraph Right of Way (Amendment) Rules, 2023. These amendments build upon the prior changes made by DoT in 2017, 2021 and 2022 to further accelerate the roll-out of robust telecom infrastructure in the country. The amendment allows licensees to set up temporary overground telegraph infrastructure in places where their existing underground infrastructure is damaged. Moreover, no fees will be levied for the implementation of such temporary set-ups.
Most importantly, the recent amendment introduces the definition for “street furniture”, encompassing posts or poles used for electricity, street lights, traffic lights, traffic signs, bus stops, tram stops, taxi stands, public lavatories, memorials, public sculptures, utility poles or any other structures of similar nature established over the property of an appropriate authority. This definition will enable faster roll-outs and more streamlined network deployments. For small cell deployment, the new amendment specifies that the appropriate authority must make provisions for allowing the licensee to submit a single application for multiple sites. Further, the relevant central authorities are now allowed to deploy small cells on their buildings and structures without administrative fees, excluding charges associated with power and fixtures provided by the building owners. Telecom infrastructure players have lauded these revisions as they enhance the focus on small cells and non-core domains like edge computing, smart cities, internet of things and electric vehicle charging.
Meanwhile, optical fibre roll-outs are expected to be driven by a renewed focus on the BharatNet project. The gigantic project, which aims to connect 640,000 villages, though behind schedule, is making progress.
Although currently limited, satellite broadband coverage is expected to grow exponentially as the satellite communication market evolves. The market has recently witnessed significant activity. Bharti-owned OneWeb and Jio Satellite Communications have secured licenses, and it will be interesting to watch the unfolding competition in this emerging sector.
The Indian data centre market is also booming. The country has transitioned from a nascent data centre market to a regional industry hub. Factors such as green energy investments, skilled manpower and low-cost locations, in addition to burgeoning data consumption, make India one of the most attractive destinations for new data centres. As per industry reports, the current total installed capacity across the country stands at approximately 1.2 GW and about 5 GW of capacity is expected to be added by 2028. Mumbai is a relatively mature data centre market, hosting half of the country’s data centre capacity. Chennai, Bengaluru and the National Capital Region are also well-established markets, while Kolkata is emerging as a hub, catering to the zonal data requirements of the region. Several states, including Karnataka, Tamil Nadu, Uttar Pradesh, Odisha, Telangana and West Bengal, have released their data centre policies. These state policies offer fiscal and non-fiscal incentives, power subsidies, infrastructure support and “essential services” status to data centres within their jurisdictions.
Despite the optimistic outlook, several challenges remain. The biggest is the financial distress in the sector, which can be addressed to some extent by implementing sustained tariff hikes. Tariff rationalisation is crucial for bolstering ARPUs. This will not only help the industry in improving the returns on investment, but also support the struggling ailing Vi, ultimately correcting the sector’s distorted competitive landscape. Notably, despite a sustained increase in ARPUs (currently at Rs 140-Rs 200) over the past few years, they are still below the ideal level of around Rs 300.
Further, there is the long-standing issue of regulating over-the-top (OTT) players and the services they offer. While OTT platforms have led to an exponential rise in data consumption and revolutionised content delivery, they are still outside the scope of telecom regulatory checks and fees. Telcos have been lobbying for video, voice calling and messaging services to be classified as communication services class, and for service authorisations to come under the newly passed Telecommunications Act. They have been urging the Telecom Regulatory Authority of India to overhaul the existing telecom licensing regime to establish a pan-India single licence and regulate OTT players under the same framework, as they provide similar services to those of telcos.
Going forward, anticipated developments include a further expansion of the country’s 5G ecosystem. The country is also set to witness the rapid growth of several next-generation technologies. For one, India is set to fully exploit the power of artificial intelligence (AI) through its IndiaAI mission. The government has earmarked over Rs 100 billion under the mission to strengthen the country’s AI ecosystem through initiatives such as compute capacity, innovation centres, data sets platform, application development, skilling, start-up financing and security.
India is also gearing up for the next phase of technological revolution by moving towards 6G. To accelerate its transition to 6G, the government has unveiled the vision document “Bharat 6G”, which outlines the strategy for rolling out high speed 6G services by 2030. As per the vision document, the use cases of 6G technology include remote-controlled factories, constantly communicating self-driven cars and smart wearables that take inputs directly from human senses.