Changing Dynamics: The evolution and future of India’s telecom sector

Over the past 25 years, India’s telecom sector has undergone a transformational journey. From a mere 1 per cent teledensity in the late 1990s to nearly 90 per cent today, the sector has evolved into a crucial pillar of the country’s digital economy. Here, I share my key insights on the sector’s progress, challenges and the way forward.

Key growth drivers

The remarkable growth of India’s telecom industry is a consequence of two main factors: deregulation and the widespread adoption of wireless technology. Deregulation opened the doors for competition, bringing in multiple players willing to invest and expand their networks. This fostered innovation and brought down costs. Wireless technology further accelerated this growth, offering cost-effective and time-efficient deployment compared to traditional fixed line infrastructure. Wireless technologies allowed rapid expansion without the need for extensive cable-laying and infrastructure investments.

Market competition: From many to a few

Initially, the industry had two private players per circle. Later, the early 2000s witnessed the entry of Bharat Sanchar Nigam Limited (BSNL)/Mahanagar Telephone Nigam Limited (MTNL) and a fourth player. The year 2007 saw a huge rush of players in the market, which continued for about five years. The market has since consolidated, with only two to three dominant private players, along with BSNL and MTNL.

Despite the consolidation, the market remains competitive. We had a period where 10 or more players competed in each circle, but now we have fewer. The challenge is in determining the optimal level of competition that ensures both consumer benefits and financial sustainability for telecom operators.

Challenges in rural connectivity

Despite extensive network coverage, rural and remote areas remain significantly underserved. There is a persistent digital divide, with many rural regions still reliant on outdated 2G connectivity or struggling with insufficient bandwidth.

Further, government initiatives such as BharatNet, aimed at enhancing rural connectivity, have not lived up to expectations with poor design and bureaucratic inefficiencies hindering success. Hopefully, this can improve with greater private sector involvement and market-driven incentives.

Changing business models

The telecom business model has undergone a fundamental shift from voice-based revenue to data-driven services. Operators are no longer monetising voice calls and SMS, but are instead focusing on data consumption.

However, I see a critical challenge in market development. Many operators hesitate to invest in rural areas due to high operational costs and low revenue potential. It is a chicken-and-egg problem. Operators do not expand due to low demand, but demand remains low because of the lack of services. Operators need to play a proactive role in developing these markets.

The 5G conundrum

When it comes to 5G, I believe its real value lies in industrial applications – low latency, internet of things expansion and enhanced data speeds for enterprises. The economic viability of 5G hinges on its adoption by businesses rather than retail users. The faster industries integrate 5G, the sooner telecom operators will see a return on investment.

Emerging trends in telecom infrastructure

Two key trends are shaping the future of telecom infrastructure. The first is the resurgence of fixed line connectivity. Despite the dominance of wireless networks, fixed line broadband – particularly fibre optic networks – is making a comeback. The second is the growth in fixed wireless technologies. Fixed wireless will complement fibre networks, delivering higher speeds to retail customers without extensive infrastructure expansion. Companies such as Jio and Airtel are investing in both these areas.

The need for policy reforms

There exist several regulatory bottlenecks that hinder market entry and innovation. The telcos have a very high regulatory burden, which not only hurts them, but also becomes an excuse to block the entry of other players. Currently, acquiring a telecom licence requires nationwide or wide regional coverage. A small player wanting to serve a specific area, such as Gurugram or Goa, cannot obtain a licence for just that location. More flexible regulations are needed to encourage new entrants, especially in underserved areas. If smaller players could target niche markets, we would see more innovation and better rural connectivity.

Outlook for 2025 and beyond

India’s telecom sector has come a long way, driven by competition and technological advancements. However, challenges remain in ensuring equitable access, fostering market development and addressing regulatory inefficiencies. Despite these challenges, I am optimistic about the sector’s future. Demand for connectivity and bandwidth will continue to rise. Private players are adept at monetising this demand, ensuring the industry’s growth. With the right policy framework and industry strategies, we can build a telecom ecosystem that not only meets consumer demands but also fuels industrial and economic growth.