The Indian telecom space has witnessed a phenomenal transition over the past decade. The surge in telecom subscriptions has been significant, touching 20 million subscribers per month. Technological progress coupled with an enabling policy regime has helped transform the market, expand networks and drive staggering growth.
To track the growth path of the telecom sector over the past decade, and identify strengths and opportunities in the space, the Competition Commission of India (CCI) launched a market study in January 2020. After analysing both primary and secondary sources of data, the CCI has now released a report highlighting the key findings of the study. The report highlights the changes in competitive strategies; analyses the dynamics of competition and cooperation between telecom services and related industries such as over-the-top (OTT) services, tower companies and infrastructure providers; and examines the policy and regulatory developments from the competition standpoint.
A look at the key findings of study…
Need for healthy competition
Over the past decade, the Indian telecom space has witnessed rapid transformation both in terms of market structure and technology. Consumer preferences have also evolved as data-rich content has replaced the voice-dominated telecom market. However, the dynamic nature of the industry and evolving business interactions across industries have led to new issues.
As per the CCI, mature markets typically support three main competitors, and the other surviving players remain at the fringes. In light of the current financial distress, any exit by an operator would mean a virtual duopoly. Thus, in the long-term interest of competition and to reap the spillover benefits of telecom for other sectors, survival is necessary. This is because a strong and competitive sector augurs well for the deployment of new technology such as 5G, while a weak sector will put a dampener on the efforts to innovate and compete.
Tariffs have been the key point of competition in the price-sensitive Indian market. However, almost all stakeholders that were approached for the study agreed that remaining the cheapest telecom market in the world would be an untenable option for the Indian telecom sector. Going forward, non-price factors such as quality of service, data speeds and bundled offerings are also likely to fuel competitive rivalry among service providers. The report states that a pan-India mobile network and data packages are no longer product or service differentiators; rather, bundled offerings (which include voice, data, SMSs and content) will be the focus of differentiation and service bouquets will be the likely choice for improving customer retention.
As data-loaded bundled offerings become the industry norm, adherence to net neutrality principles will be instrumental in ensuring a healthy competition. The principles of net neutrality are also going to gain prominence as technology convergence drives integration across the value chain.
Further, as telecom operators invest in digital content companies, digital payment platforms and social media firms, and vice versa, they may show preference for their own content or network. Most stakeholders in India currently view OTT partnerships as a win-win for operators, these companies and consumers. OTT companies have also stated that these relationships have proven to be mutually beneficial since net neutrality regulations in India prevent discriminatory treatment. From a competition standpoint, there is also a principle of search neutrality, which bars search engines from promoting their own business in response to queries. Therefore, the CCI has to be vigilant that such vertically integrated infrastructure providers do not indulge in actions that could foreclose entry in the application layer. If any conflict of interest arises because of such agreements, it would be looked into by the CCI on a case-by-case basis under the Competition Act, 2002.
Data privacy and competition
Another aspect of data in the context of competition in the digital communications market is the conflict between allowing access and protecting consumer privacy. In the era of data aggregation, competition analysis must also focus on the extent to which a consumer can “freely consent” to action by a dominant player. An example of abuse of dominance is lowering privacy protection. It falls in the ambit of antitrust as a low privacy standard implies the lack of consumer welfare.
While India is yet to pass a domestic data protection law, the existing antitrust tools can help address the competition issues related to privacy standards. Going forward, the formal and informal lines of communication among the Department of Telecommunications, the Telecom Regulatory Authority of India, the CCI and the envisaged data protection authority will be key to ensuring fair and consistent regulatory decisions. While overlapping jurisdictions between institutions cannot be completely eliminated, they ought to be harmonised through better regulatory design and improved lines of communication.
The rapidly mounting repository of content has posed the challenge of network capacity management for operators. As per the existing practice, public peering in India is permitted with the National Internet Exchange of India at a fixed charge. Private peering is based on bilateral negotiations, wherein the terms of the agreement are confidential and are not publicly available. While stakeholders did not see this as an area of concern, there have been instances where companies have discriminated between internet traffic depending on whether they have a peering arrangement with a company. Therefore, experts recommend that peering arrangements be made more transparent without compromising forbearance in commercial terms and conditions.
Infrastructure sharing and unbundling of network components
Sharing has become the preferred option among operators to optimise infrastructure utilisation. To this end, passive infrastructure can be created and shared by infrastructure providers through IP-1 registrations on a non-discriminatory basis as per their registration certificate requirements. Feedback received from the industry points towards healthy competition in the passive infrastructure segment. However, active infrastructure sharing needs to be incentivised. In this regard, a policy enabling active infrastructure sharing under a light-touch regulatory framework may have the desired effect.
Infrastructure utilisation can also be optimised through the unbundling of network components. Almost all sector experts approached for the study were of the view that the infrastructure, network, service and application layers must be completely segregated to introduce competition in the market. Unbundling will allow telcos to reduce their costs by outsourcing specific services to independent licence holders. This will also increase competition within each layer. Experts suggest that this unbundling will become inevitable with the launch of 5G. There is a huge potential in hiving off specific parts of the licence and selling them as a separate service. For instance, network-as-a-service would be a market in itself, as would be the service layer. However, the application layer can continue to be governed through light-touch regulation.
Spectrum allocation and its impact on 5G
With regard to spectrum, India has transitioned to a market-based approach (through licensed auction) though other regimes, such as command and control models, and generic licensing or common use models, continue to prevail in other countries. The average spectrum holding for an Indian operator is lower (31 MHz) than the global average of 50 MHz.
Spectrum allocation will be key to the successful launch of 5G services in India. Based on the available information, spectrum for 5G will be relatively more expensive in India than in other countries. Further, the quantum of the spectrum will determine the quality of 5G offerings. Therefore, creating a competitive market for 5G will be crucial for its success in India. This requires the allocation of spectrum at a reasonable cost, balancing revenue realisation and industry viability. The financial health of the sector as a whole could result in an uneven rate of 5G adoption by operators, with the more profitable ones in the lead. This will have long-term implications for the level of competition in the industry.
By Kuhu Singh Abbhi