Telecom has been a reflection of India’s growth story. While an exponential increase in voice subscribers marked the decade of 2000-10, the decade that followed saw an unprecedented rise in data users. This growth in telecom services was driven by expanding telecom infrastructure, industry initiatives and a supportive policy and regulatory environment. Telcos’ business and revenue models have changed, so has the nature and complexity of the challenges that they face. tele.net invited consultants and analysts to share the major milestones of the sector in the past two decades and the future outlook.
How would you assess the progress in the Indian telecom sector over the past two decades? What were the key drivers of change during this period?
The Indian telecom sector has come a long way in the past two decades and is currently the second largest telecommunications market in the world. We have grown our telecom subscriber base from 5 million in 2000 to over 1 billion in 2020. Similarly, broadband subscribers have increased from less than a million to over 650 million. We should be proud of this growth.
The key drivers for change are:
- Due to high competition, telecom tariffs have always been low as compared to global standards. This made telephones affordable for the common man, thereby leading to their mass adoption.
- The mobile handset ecosystem quickly responded to market needs.
- Aggressive push by telecom operators with per second billing, unlimited calls for selected plans /numbers, etc. contributed to the increased adoption and also changed the usage habits of consumers.
- Social change(s) in India in the past two decades was another key driver.
- The digital revolution that occurred in the past two decades significantly contributed to the growth of the telecom sector.
India has been one of the fastest growing telecom markets in the past two decades. Starting with a small subscriber base to recording more than 1 billion mobile subscribers in 2019, the telecom sector has covered major ground in fulfilling the access and connectivity needs of the population. From a technology standpoint as well, we have evolved from legacy PSTN networks to modern IP-based networks that carry massive volumes of data over a large optic fibre footprint across the country.
A key driver that has contributed to this exponential growth is the launch of data services across India. The Launch of 3G and LTE services has not only improved the quality of communication but also created a digital ecosystem. Intense competition amongst operators has also contributed to this exciting growth story.
The availability of cheaper 3G/LTE handsets coupled with multiple OTT platforms has also influenced the adoption of mobile services. Last but not least, the push from the government by way of initiatives such as Digital India, the Smart Cities Mission and BharatNet has also enhanced the uptake of digital services.
Dr Mahesh Uppal
The progress has been dramatic and impressive. Two decades ago, barely 1 per cent could access telephone services and a tiny fraction of those had access to data services, including the internet. Today, access to telephony is near universal. Internet subscriptions and usage have expanded sharply and now extend to over 50 per cent of the population. The numbers may be slightly exaggerated since they do not capture people with multiple accounts. However, while affordability and literacy are still a challenge for many, the progress and the trends are unmistakably positive.
The sharp fall in prices and the steep increase in data speeds have helped expand the user base and the quality of experience. These, as well as a staggering growth in e-commerce and internet-based money transfers, are some of the key drivers of change. The government’s Digital India Programme with its focus on the use of the internet for service delivery and payments along with nationwide internet connectivity are other important contributors.
What are your views on the current financial situation of the sector? By when will the industry see a turnaround?
The current financial situation of the sector is not at all encouraging. Most operators are going through tough times with very high liabilities in their balance sheets. This is like a crisis situation where industry players don’t have money to invest in networks and upcoming technologies, which, in turn, is limiting the growth. I feel it will take 18 to 24 months to see a turnaround. For now, the central government should come up with innovative ways to help the industry navigate through these short-term challenges. In the near term, we will see higher mobile tariffs, which will slowly improve the financial condition of telcos.
Indian operators have been facing the challenge of shrinking revenues and increasing operational costs. The recent Supreme Court verdict on the AGR definition which mandates DoT to recover more than Rs 1 trillion in licence fee and spectrum usage charges (SUC) has impacted the financial health of incumbents in the medium term.
Amidst all this, telecom operators are also trying to come up with the right approach to the upcoming 5G auctions and network modernisation initiatives in view of the impending 5G roll-out.
Continued price evolution, enrichment of product portfolios (the adoption of cloud services, data centres, SDN/NFV, etc.), collaboration with OTT players, mergers and acquisitions/carve-outs for monetising the latent potential of telecom assets, network densification and 5G roll-out will help operators improve their profitability in the long run.
Dr Mahesh Uppal
The financial situation is dire and this must worry the telecom ministry and TRAI. Neither can justify an environment where over 30 per cent of all investments in the sector return to the government in the form of levies. The situation is made worse due to poorly designed auctions that have raised the cost of spectrum, a vital resource for the industry. With reduced competition and a rise in end user prices, one can expect the situation to ease in the later part of the year. However, it would be an exaggeration to call it a turnaround.
How have telcos’ business models changed over time? What should be the key areas that they must focus on in the coming years to drive revenue growth?
In the past two decades, telcos’ business models have remained more or less the same. The only change is in the focus of products and services. For example, while revenue from fixed voice services declined, we witnessed increased revenue and focus on mobile voice and data services. But this cannot continue like this.
Telcos need to relook at their business models and make modifications to cater to the changing demand. They need to move away from being mere network providers to offer customised technology-based solutions to consumers and businesses.
In the past few years, data has overtaken voice to become the mainstay of telecom revenues. Accordingly, the spending on voice-based legacy networks has decreased and most of the investments are for modernising data networks.
Further, the convergence of telecom and IT has led operators to increasingly venture into the B2B space by collaborating with global technology leaders in order to provide cloud- and data centre-based solutions that are showing higher uptake from enterprises across India.
Over the next few years, the count of connected devices and the variety of content will continue to grow at an exponential pace. Hence, to provide a seamless experience to customers, it is imperative for telecom operators to continue investing in network densification, 5G readiness and fibre deployment. In the B2B space, telcos will need to focus on enhancing their cloud, data centre and storage-based portfolios to improve their performance.
Dr Mahesh Uppal
Till three years ago, voice calling accounted for the larger part of a telco’s revenues even though its contribution to network traffic was low. With the growing use of the internet, and especially since the entry of Jio, the revenues from voice have plummeted. The telco business is now predominantly driven by data usage where margins are low. Fortunately, with internet usage expanding widely, data consumption, especially video entertainment, has increased sharply in recent years. The trend can be expected to continue in the near future.
What are your views on the evolving 5G ecosystem in India?
The 5G ecosystem is currently limited by the investment potential of telcos. The financial stress of telcos is delaying the roll-out. Looking at the current situation, the realistic time for 5G roll-out in India is at least 18 months away. There are a number of good use cases in India for 5G in the enterprise segment as well as in the consumer space. India being a country with high video streaming, I feel that the latent demand for 5G is very strong. Given the large subscriber base in the country, I am sure the mobile device ecosystem will quickly respond to market needs and it will never be a limiting factor for quick 5G adoption.
Telecom service providers as well as the government are optimistic about 5G’s transformative potential in both telecom and other industries. Owing to its high speed and low latency, 5G is expected to create a wide range of use cases, which will span the manufacturing, healthcare, e-commerce and many other industries where speed, latency and a superior customer experience are of essence. More action in terms of spectrum auction and 5G trials is expected in the next 18 to 24 months.
Considering the bandwidth requirements of 5G networks, one of the key prerequisites is availability of a robust optic fibre backbone. Most sites across India continue to operate on microwave networks. Migrating these sites to optic fibre would be a key consideration for operators. Furthermore, owing to high bandwidth requirements of 5G networks, telecom operators will need to densify their data networks across cities and this will result in towercos investing in improving their tower footprint. While the 5G device ecosystem in India is still at a nascent stage, handset manufacturers are working towards affordable 5G handsets, which will make them attractive to Indian buyers.
Dr Mahesh Uppal
The 5G ecosystem is currently very weak. Admittedly, the government has been supportive of providing spectrum for 5G trials. However, access to spectrum for commercial services may be a different matter. The reserve price is high and may deter players that are already struggling with unprecedented debt. The government seems to be prioritising the auction of the 3.5 GHz band over the 26 MHz or millimetre wave band where more spectrum is readily available. Prospective bidders will also be daunted given the limited experience in 5G deployment and the weak business case for its use. 5G devices too are scarce and expensive. Another concern is the lack of regulatory preparedness for 5G. The new services will need a much more flexible and liberal approach.
Further, 5G may not be deployed pervasively in the beginning. Demand for 5G features like ultra-high speeds, low latency, and support for M2M communication is not uniform. Therefore, 5G players might first target specific users in industries such as media, gaming, healthcare and education. The existing roll-out obligations might simply not work.
What will be the key emerging trends that will shape the telecom infrastructure space?
One of the key trends that are going to shape telecom infrastructure is the shared economy. The success we have had in the passive infrastructure sharing space will soon be replicated in active infrastructure. We will see a new business model evolving on the infrastructure sharing side. ‘IP-fication” of networks and services is another key trend. Automation and emerging AI will be heavily leveraged in the next-generation telecom infrastructure.
From a towerco standpoint, adopting innovative tower deployment approaches to support network densification and 5G roll-out will be important to their success. Further, investing in technology-based solutions to bring down power consumption, arrest fuel pilferage and embrace greener energy are expected to be high on towercos’ agenda. For telecom operators, enhancing fibre footprint and active network sharing will be crucial for meeting infrastructure requirement. The government will continue to focus on its digital initiatives such as public Wi-Fi, BharatNet and the Smart Cities Mission.
Dr Mahesh Uppal
The drastically reduced number of players in the market as well as the emergence of 5G services will impact the telecom infrastructure space in a big way. The reduced tenancies due to market consolidation could seriously hurt the economies of infrastructure players. Meanwhile, 5G services will require more towers at short distances. However, they too will pose challenges of permissions from local bodies and the high fees that the latter often demand.
TRAI is currently consulting on expanding the scope of services allowed under the IP-1 registration required to offer infrastructure services to telecom operators. It is likely that IP-1 players will offer “active” components such as radio access networking or lit fibre for use by telcos. However, some of the flexibility sought by IP-1 players such as connectivity to data centres might encroach on the enterprise business of the existing telcos.
What is your outlook for the sector for 2020? What are some of the challenges that must be addressed immediately?
By the end of 2020, we will see the telecom sector slowly recovering from the high financial stress. The industry has already consolidated and we will witness the phasing out of incentives that customers were enjoying during the past couple of years. One of the key challenges that need to be immediately addressed is the huge financial liability of telecom service providers. The government needs to help the industry navigate through this short-term challenge, and address concerns and regulatory bottlenecks around 5G auction and 5G trials.
Given the magnitude of financial stress that most telecom operators are in, it may take a few years for them to recover and undertake any large-scale investments, considering the upward price evolution. Hence, instead of any short-term solutions, operators may need to devise a long-term roadmap. Such a roadmap may need to focus on an agile operating model with choices such as shutting down legacy technologies, prioritising roll-outs, leveraging government-led initiatives such as BharatNet, and forging the right partnerships and alliances.
Dr Mahesh Uppal
There are signs that the financials of the sector are improving, albeit slowly. The smaller number of players could be a mixed blessing. Consumers can hardly welcome reduced competition if the prices rise or quality of service deteriorates. The government, too, will be concerned that fewer bidders might depress spectrum prices.
The sector’s licensing norms are at the root of several problems facing it so are the weak safeguards against anti-competitive practices. India is out of step with mature regulatory regimes, which have completely abandoned the old licensing frameworks. They are receptive to diverse players, technologies, services, business models without onerous regulatory burdens. India too will need to abandon current levies and the underlying revenue sharing approach used to compute them. The sooner India can catch up, the more stable its telecom sector will be.