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Growth Expectations: Industry associations call for easing of regulations

February 26, 2016
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The Indian telecom industry continued to be on a rising trajectory in 2015 on the back of growth in the 3G and 4G markets, and an improved policy and regulatory environment. However, some issues still need to be resolved, particularly those pertaining to the infrastructure and equipment sector, spectrum availability, desealing of mobile towers, right of way (RoW), domestic equipment manufacturing and adherence to quality standards. Members of key telecom associations share their views on industry achievements, key issues and challenges, as well as expectations from the government going forward...

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How has the industry performed over the past one year and what were its key achievements?

T.R. Dua

India has witnessed significant economic growth over the past few years and is expected to continue doing so in the foreseeable future. Infrastructure development across sectors, including telecom, power, transportation and housing, is the key to inclusive growth. Telecommunication is one of the fastest growing markets in India and second fastest in the world. The growing population, rising demand for digital services and legislative push through schemes like Digital India have increased the penetration and scalability of telecom services in India. In the past 15 years, mobile subscribers have increased tremendously, thereby accelerating mobile business revenues at an average rate of 3 per cent per year. The subscriber base has crossed the 1 billion mark, with the wireless segment dominating the market (97.36 per cent of the total subscribers).

The increase in subscriber base has led to an expansion in telecom network and infrastructure. The tower footprint has seen phenomenal growth in the past two decades, and along with it, the tenancy ratio for towers has also increased. As per Deloitte’s report, “Indian Tower Industry – The Future is Data”, the tenancy ratio in the Indian telecom tower industry is expected to grow from 1.77 in 2014-15 to 2.48 by 2020, primarily due to an increased focus on data. The overall site tenancies, including 2G, 3G and 4G, are expected to increase to nearly 1,268,000 by 2020. There are close to 400,000 telecom towers in India at present, and these are estimated to increase at a compound annual growth rate of 3 per cent over the next four to five years. Meanwhile, the total number of towers is expected to increase to over 511,000 by 2020.

N.K. Goyal

The Indian telecom industry has performed well over the past year with the subscriber base increasing steadily and the top lines of operators improving on account of growth in the 3G and 4G markets. Besides, positive policy initiatives have contributed to the telecom sector growth. The issues pertaining to the lack of spectrum availability were resolved with the successful spectrum auction in March 2015. Local manufacturing also picked up owing to the Make in India initiative.

Rajan S. Mathews

The Indian telecom sector has evolved continuously and consistently during the past year with total subscriber additions of 64.21 million. It has also witnessed steady growth, with a total rural penetration of 50.04 per cent. According to TRAI data, the number of total internet subscribers and percentage of internet penetration during 2015 were 319.42 million and 5.37 per cent respectively. Despite stiff challenges, ranging from regulatory hurdles to spectrum prices, India remains one of the largest competitive telecom markets across the globe. The industry witnessed a successful auction of airwaves and 4G LTE service roll-outs despite operational issues like the lack of sites for setting up network infrastructure. It has fared well in managing financial pressures to roll out services in time on newly acquired spectrum bands.

However, with the government permitting the trading and sharing of a premium resource like spectrum, it has allowed for both operational and financial consolidation. This will translate into greater benefits for consumers in terms of tariff and service quality. So, overall, while the industry is optimistic about the future, it will tread with caution with respect to the mega-auction of spectrum coming up later in the year.

T.V. Ramachandran

The past year was a historic one for the Indian telecom sector. India’s first cellular metro networks were set up and commercially launched in November 1995. Thus, 2015 has seen the completion of two decades of actual operation of these networks during which the Indian telecom industry has become one of the topmost markets in the world. This has been possible through the synergistic effect of dynamic and forward-looking policies, enabling regulation, and unmatched entrepreneurial initiatives and innovations. There has been a unique engagement of industry with the government and regulator globally during the past two decades.

The key achievements include the launch of 4G networks and the mobile subscriber base in India crossing the 1 billion mark. The ease of doing business in India has improved and moved up 13 notches. The industry has witnessed a rapid rise in mobile applications and over-the-top (OTT) players. The availability of low-cost consumer devices has facilitated a sharp uptake in smartphones. Meanwhile, innovative launches like Facebook’s Free Basics and Airtel’s Zero Rating are helping increase internet penetration and bringing about the much-needed digital inclusion of the rural population. The industry has also been witnessing consolidation as merger and acquisition (M&A) activities gain momentum with the improving policy landscape.

How was the policy and regulatory environment in 2015?

T.R. Dua

The government’s liberal and reformist policies have played a key role in catalysing telecom growth. Some of its key initiatives are as follows:

  • Digital India: Digital India envisages transforming India into a “knowledge economy” by leveraging information and communications technology (ICT). This initiative offers huge opportunities, especially for tower companies as new infrastructure development is required to support new customer segments. As a result, there is scope for revenue growth for tower companies.
  • Make in India: The Make in India initiative intends to boost manufacturing in the country. While brands like Motorola and Xiaomi have already started assembling smartphones in India, companies such as Asus, HTC and Gionee have shown a keen interest in manufacturing in the country.
  • Permission to install towers on public infrastructure: The government has allowed the installation of cellphone towers on central government buildings and structures.
  • Smart Cities: The development of smart cities will require robust ICT infrastructure. It will also need high speed networks for meeting energy, transportation and communication needs, which will lead to the creation of infrastructure in telecom.

Rajan S. Mathews

The regulatory environment in the Indian telecom sector was challenging and difficult to navigate in 2015, especially with the regulation on call drop compensation, among other issues. However, there were a few positive indications as well. A key laudable highlight was the permission given by the government on spectrum sharing and trading through what one would call a balanced and stable policy. As the new policy takes shape in one of the world’s largest telecom industries, it is imperative that regulators and policymakers continue being empathetic and sensitive to industry as well as consumer interest.

We are appreciative of the spectrum sharing policy, and encourage and entreat the government to provide further room for manoeuvre, similar to how it has been manifested in the spectrum sharing and trading policy. At the end of the day, regulations and policies that provide elbow room to operators to pool together their respective resources ensures the efficient and productive utilisation of resources and enables better quality and service delivery.

T.V. Ramachandran

The policy and regulatory environment over the past year has largely been positive. The year witnessed one of the most successful spectrum auctions in March 2015. The Digital India initiative was launched with a clear vision and conviction regarding India’s future as an inclusive information society. Apart from this, steps were taken to frame a machine-to-machine (M2M) policy and there was increased focus on the internet of things.

In a major breakthrough, there was harmonisation of spectrum in the 1800 MHz band. Besides, guidelines for spectrum trading and sharing were notified. The announcement of these policies is crucial for mobile sector growth, but it had unfortunately been delayed for years. A few spectrum trading and sharing deals were announced, which can result in a win-win situation for all stakeholders.

In 2015, payments bank licences were awarded to some mobile operators, which is expected to increase mobile commerce. Meanwhile, the government allowed the setting up of mobile towers on government properties. This move is expected to improve the quality of service significantly. Finally, the joint agreement between the Ministry of Communications and the Ministry of Information and Broadcasting regarding the use of TV UHF (television ultra high frequency) bands for mobile services is an important, forward-looking step.

What are the key sector challenges?

T.R. Dua

The key challenges facing the Indian telecom infrastructure industry include the restrictions on the location of cell sites, delays in the processing of applications and the need for multiple clearances, the requirement of multiple no-objection certificates from various departments for installations, and problems in obtaining RoW clearance from government authorities. Further, the alleged fear of electromagnetic frequency (EMF) radiation has encouraged local bodies to take coercive action such as shutting down operational sites.

Other key issues impacting the growth of the telecom infrastructure industry include the retrospective implementation of state-specific tower policies and the high fees levied for site registration, sharing or renewal. There is also a high incidence of taxes on cellular towers. In addition, there are operational challenges such as unreliable power supply in rural areas, which impacts the setting up of telecom towers in these areas and acts as a major hindrance in tapping potential rural markets.

To overcome these challenges, the Department of Telecommunications (DoT) and the Urban Development Directorate have agreed in principle to permit the installation of mobile towers on government buildings, while issuing stricter EMF norms and continuous monitoring by the Telecom Enforcement Resource and Monitoring (TERM) Cell. Further, there are no restrictions on the setting up of towers in and around residential, schools and hospitals.

N.K. Goyal

The primary challenge faced by the telecom industry is the lack of coordination between the states, which hampers investment. In the manufacturing segment, foreign investors always find it difficult to decide which state to invest in on account of the lack of clarity in the incentives offered. Apart from this, the lack of adherence to quality and standards is an important concern. The manufacturing of components and accessories has also not picked up in India.

Rajan S. Mathews

The telecom industry has come a long way in establishing a strong wireless technology ecosystem over the past few years. This is testament to the fact that the government and the industry have worked tirelessly and diligently to bring all stakeholders on board for crafting a well thought out and structured policy roadmap.

Although the quality of telecom services has been improving continuously, the Indian telecom sector still faces quite a few challenges. These include the unavailability of adequate space for network infrastructure (which must be provided through a homogenous and nationally consistent tower policy framework); the lack of stabilised and benchmarked prices and spectrum allocation consistent with international best practices; and the lack of uniform policy for addressing rural telecom penetration.

One would expect greater clarity and focus on reshuffling policies on spectrum allocation by concentrating on fair pricing and more transparent auctions. Telecom operators are more than willing to work alongside the government for enhancing broadband penetration in semi-urban and rural areas by reducing cost impediments and facilitating an efficient high speed internet highway for delivering key government initiatives like Smart Cities, Digital India, Smart Governance and end-consumer-centric initiatives in m-health, m-education, m-banking and m-governance.

T.V. Ramachandran

Some serious concerns for the sector include the retrograde actions of local bodies, municipalities and state governments in matters pertaining to mobile tower installations and RoW issues. These have seriously restricted the growth of the sector and sharply impacted the quality of service. Meanwhile, concerns have arisen with regard to the penalties levied on operators for call drops. The sector continues to suffer significant disadvantages of non-level playing field treatment vis-à-vis the same service being offered by communication service providers of the OTT ecosystem. While Indian mobile tariffs continue to be one of the lowest in the world, the sector continues to bear the brunt of enormous duties and levies, and is laden with a staggering debt burden of over Rs 3,500 billion.

What are the key expectations from the government going forward?

T.R. Dua

Connectivity is a key social enabler and a policy priority for the government. Maintaining policy alignment allows demand for ICT services to be generated and increases the likelihood of achieving socio-economic benefits. Some of the actions that we expect the government to take to facilitate growth in the sector are as follows:

  • RoW: The telecom tower industry has been given infrastructure status. Therefore, various amenities should be given under RoW in order to deploy crucial infrastructure.
  • Single-window clearance: Telecom infrastructure providers face several challenges in expanding their footprint due to the multistage approval process involving various civil authorities such as municipalities and gram panchayats.
  • Rationalisation of taxes: The taxes and levies are currently estimated to be nearly 30 per cent of the revenues earned by telecom companies as compared to 5 per cent in other Asia-Pacific countries. Relief from this financial burden will allow the companies to invest more in infrastructure to enhance connectivity and quality.
  • Uniform DoT guidelines: The adoption of DoT guidelines by states across India is the need of the hour and will help in reducing delays in rolling out necessary infrastructure.
  • Deployment of new and efficient technologies: The government should facilitate the deployment of new and efficient technologies such as M2M and cloud computing as it will provide an impetus for the growth of various sectors such as manufacturing.
  • Other measures that the government can take include no restrictions on the location of cell sites for tower installation, no coercive action by state authorities without the consent of the TERM Cell, priority electricity connection to towers on the lowest tariff, and a one-time administrative fee to recover the cost of issue of permission.

N.K. Goyal

The government should consider extending the tax sops under Section 35AD to domestic telecom equipment manufacturers complying with the government’s preferential market access policy.  This will help boost the local manufacturing of electronics and telecom equipment. Along with this, the specifications of the Telecom Engineering Centre (TEC) should be made mandatory to keep a check on quality.

The government should also consider levying a cess on telecom operators to build a corpus for funding local research and development capabilities in the telecom industry. Meanwhile, some quantum of spectrum can be allocated for domestic technologies as per the existing provisions under the spectrum policy. Apart from this, a uniform tower policy is required, which will facilitate the setting up of telecom towers to improve the qualit of service.

With regard to handset manufacturing, the government can nominate some of its own bodies, like the Centre for Development of Telematics, TEC, Telecommunications Consultants India Limited and the Centre for Development of Advanced Computing, to release the IMEI numbers. Moreover, infrastructure providers should also be allowed to bid under government-funded telecom infrastructure projects, where the eligibility is restricted to only licensed access service providers.

Rajan S. Mathews

Going forward, we urge the government to continue its future-ready focus on priority areas, such as making available a larger quantum of spectrum to address growing voice and data needs, and including enough spectrum to allow high speed broadband access to potential users in semi-urban/rural areas. The need of the hour is to chart out uniform policies on spectrum and tower infrastructure, and prepare draft plans and policies for future generation technologies like the internet of things (IoT), M2M and white spaces.

The government should also begin addressing the industry’s concerns and work on rationalising taxes and levies to make it more efficient, productive and transparent. It should explore regulatory measures and the concept of revenue-sharing between OTT internet services/internet based-service platforms and telecom companies to ensure maximum cost and service benefits to consumers.

T.V. Ramachandran

The government should provide a more conducive environment by way of better policies and easing of regulations to facilitate the creation of more innovative products and services. More practical M&A policies should also be introduced to improve the conditions for consolidation in the industry. The telecom sector is heavily burdened by taxes and levies, which amount to nearly 28-30 per cent. Despite the fact that the sector offers the lowest tariffs, it is burdened with the highest levies. The government should take some measures to correct this anomaly by gradually reducing the impact of taxes and levies, and thereby making the business case for the sector attractive. This may be done by declaring a sunset date and a phased plan over the next three years for a gradual reduction by 1-2 percentage points every year.

The Make in India initiative is likely to provide an impetus to the manufacture of components, thereby facilitating telecom equipment manufacturing in the country. Meanwhile, in order to implement the Digital India and Broadband for All initiatives, there would be a continuous requirement for a larger quantum of spectrum. This, in turn, would require more harmonised spectrum in the relevant bands.

The industry requires clear guidelines for the setting up of new towers, RoW and infrastructure in order to expand mobile broadband coverage to inaccessible rural areas. While central guidelines are in place, there should be uniform implementation across the country. Lastly, as a result of the rise in the number of content/OTT players, there is a need to provide a level playing field for fair competition between OTT players and telecom/internet service providers.

 
 
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