As tele.net celebrates its 25th anniversary, it is an opportune moment to reflect on how the telecom ecosystem has changed. Telecom is the foundation of digital economies, and the thrust for Digital India is generating more demand for fast data-driven services.
The dynamics have changed substantially over the years, not least due to the pandemic. Policy has been updated. New technologies have emerged and more are on the way. Alongside these changes, the traditional telecom company has also started to change.
The distinctions between telecom service providers and IT service providers are blurring. The modern telecom services company must not only provide network and bandwidth, it should also be a hyperscaler, providing a range of services to enterprises and individuals. It is also, in effect, the successor to cable TV, providing access to entertainment and news. It may also be a payments bank, offering digital financial services.
Let us run through some of the developments in the telecom sector over the past few years…
India was the second-largest telecom market five years ago and it has maintained that position. However, it is not the same market as it was in 2019.
As of November 2024, the total number of connections stood at 1.187 billion compared to 1.175 billion in November 2019. Teledensity (mobile plus wireline) stood at around 84 per cent in November 2024, according to the Telecom Regulatory Authority of India, lower than the teledensity of around 89 per cent registered in November 2019. The decline is partly on account of some subscribers giving up their second mobile connections and partly due to the expansion of the population base.
Moreover, there are major variations in teledensity across states, with Bihar at 56 per cent, Himachal Pradesh at 119 per cent and Delhi at 278 per cent. Urban teledensity, at 131 per cent, is much higher than rural teledensity at 58 per cent (November 2024). In comparison, in November 2019, urban teledensity was 157 per cent while rural teledensity was 57 per cent. There are 660 million urban subscribers now versus 666 million in 2019. Meanwhile, rural teledensity has reported gains, with 527 million active rural connections in November 2024 versus 509 million in 2019.
The big growth area is apparent when we look at the types of connections. There are 904 million wireless broadband subscribers now versus 642 million wireless subscribers in 2019, and 40 million wireline broadband subscribers now versus 19 million in 2019. In addition, machine-to-machine (M2M) connections stood at around 57 million in November 2024.
The networks are faster, with 5G, 4G and fibre-to-the-home (FTTH) enabling faster downloads. India’s per capita data consumption is among the highest in the world. As of September 2024, per capita data consumption stood at 21 GB per month, which is projected to reach 62 GB by 2028. In November 2019, data consumption was 12 GB per month. The statistics suggest that urban teledensity has reached saturation, while rural teledensity has grown slowly. But broadband usage and data consumption have increased rapidly.
India is a data-driven market. When we break up revenue streams, revenues from data usage are over 10x higher than revenues from voice. Telecom service providers have to find ways to monetise data growth more effectively and develop alternative revenue streams by servicing the new demand for fast data connectivity.
In September 2019, the ARPU for wireless services was Rs 74 per month. Five years later, by September 2024, it had increased to around Rs 172. Airtel has the highest ARPU of around Rs 233 as of December 2024. Given the substantial capital expenditure incurred by telecom service providers, it is important that ARPUs grow rapidly.
Over the years, the competitive intensity in the sector has eased with three private service providers and Bharat Sanchar Nigam Limited (BSNL) + Mahanagar Telephone Nigam Limited (MTNL) together controlling over 99 per cent of the wireless broadband market. The three private operators hold over 91 per cent market share. Reliance Jio and Bharti Airtel have a significant lead over Vodafone Idea Limited (Vi) in terms of subscribers and ARPU, and Vi, in turn, has more subscribers and a higher ARPU than BSNL.
The sector has witnessed major consolidation over the years. By 2019, it had consolidated around three large private operators competing with the PSU, BSNL (and MTNL in Delhi and Mumbai). The consolidation has given operators some pricing power. The three private operators have hiked tariffs and are likely to continue doing so. In conjunction with the potential for new revenue streams as 5G takes hold, tariff hikes may generate better cash flows. However, Vi may require government support.
A major disruptor in the sector has been the Covid-19 pandemic. The ensuing lockdown in 2020 led to drastic changes in the digital ecosystem. As work from home became the norm due to the lockdown, there was a huge push towards digitalisation. Digital India was already a policy, but the pandemic led to accelerated digitalisation.
India started relatively late with 5G, but the roll-outs by Jio and Airtel have been amongst the fastest in the world. Both operators also offer fixed wireless access and FTTH. The capex is considerable. Vi is now looking at its 5G roll-out. Once it is completed, most urban dwellers and a large portion of the rural population will have access to 5G.
Since neither Jio nor Airtel has yet hiked 5G tariffs compared to 4G, the key constraint in the adoption of new high speed networks is the possession of 5G-capable handsets. These handsets are quite affordable and penetration is increasing.
As of now, 5G has not yet paid off substantially in terms of commercial applications. As internet of things (IoT) penetration increases, there will be more opportunities. Both Jio and Airtel are looking at servicing enterprise-level demand at scales where they can generate higher free cash flow from the new networks.
As mentioned earlier, rural teledensity and ARPUs remain low. This is due to several reasons. Rural ARPUs are low because rural incomes are low. The vast majority of subscribers without mobile broadband are rural. Operators are reluctant to invest in rural networks.
Another issue is difficult, sparsely populated terrain. India has many mountainous and forested areas and archipelagos, where building out and maintaining terrestrial networks is technically challenging and expensive.
Satellite broadband is the best possible solution for connecting such regions and is now getting increasing attention. Every major global satellite broadband operator is looking at this market, either on its own (as in the case of Starlink) or in partnership with Indian operators (SES-Jio and Airtel OneWeb).
However, there are several questions regarding the provision of satellite services that need to be addressed. How will spectrum be allocated and be paid for? What services will satellite broadband operators be allowed to offer, and to whom? How will tariffs be calculated? There are also technical challenges. Operators must work out efficient ways to roll out services, address issues of equipment compatibility, and find ways to enable customers to seamlessly switch between terrestrial and satellite networks.
Assuming satisfactory solutions are found, we may soon see satellite broadband becoming available across underserved regions. Satellite services would also set off another round of competition and investment.
Satellite services are expensive compared to terrestrial services, and Indian consumers are price-conscious. But Starlink has offered discounted rates to enter comparable markets such as Kenya and competition should keep tariffs affordable. Connectivity where there is currently none (and backhaul support via satellite for terrestrial networks) would be a boon for commerce.
In financial terms, Reliance Jio has the largest revenue market share with Airtel coming in second. Vi is well behind and BSNL is in the fourth place, far behind the private operators. Jio and Airtel have already rolled out extensive 5G networks while Vi has just started. BSNL has only recently started deploying 4G.
In the quarter ended September 2024, the sector’s gross revenue stood at Rs 914.3 billion with adjusted gross revenue (AGR) at Rs 753.1 billion. In September 2019, gross revenue was at Rs 600 billion, with AGR at Rs 373.4 billion. This gives a sense of the growth rates in the sector, which stand at around 8.8 per cent CAGR.
Jio and Airtel are profitable. But Vi is mired in debt, most of which is owed to the government. Airtel too has a substantial debt burden but the Bharti Group is in a position to service that. Vi has raised some funding, which will enable it to roll out 5G, but the operator may require another government intervention to help it cope with its debt burden.
BSNL (and MTNL) is a different kettle of fish. BSNL has low debt, but it is overstaffed and incurring losses. MTNL also runs at a loss and has a similar overstaffing problem. Ambitious projects such as BSNL’s 4G network roll-out and the linking of panchayats via fibre are behind schedule. Making BSNL a serious player again will require pragmatic policy action by the government.
Policy adaptation to deal with changes within the sector is necessary. Spectrum licensing remains a contentious issue in the realm of satellite broadband. The new policy under the Indian Telecommunications Act, 2023 envisages the administrative allocation of satellite spectrum (with the operator paying a charge). This has been opposed by major players like Jio.
Apart from this, policymakers have made right-of-way approvals and the installation of street furniture easier, thereby facilitating network roll-outs. Going forward, the treatment of AGR will ease the debt burden for future operations. Over-the-top (OTT) platforms are another area of contention – how should they be regulated and should OTT players be required to share network costs?
Digital Bharat Nidhi (DBN), the rebranded Universal Service Obligation (USO), has a broader brief. While it will promote the delivery of telecom services in underserved rural and remote areas like the USO, it will also do so in underserved urban areas. Moreover, it will fund the research and development (R&D) of telecommunication services, technologies and products, support pilot projects and consultancy, and offer advisory support to improve connectivity. The expanded scope of the DBN could lead to improved quality of service, if the funds are utilised properly. Implementation will be key.
There are also two concrete corporate situations that the government must tackle sensibly.
One is the treatment of Vi’s debt burden. There has already been a bailout, but it involved the conversion of debt to equity, making the government the single-largest shareholder in Vi. Another bailout may be necessary since Vi does not generate enough operating profits to adequately service debt. If Vi is allowed to collapse, it would lead to significant disruption, given its 213 million subscribers and plenty of assets. Vi is also hoping for a favourable outcome in the AGR appeal currently before the Supreme Court, which could reduce its dues by Rs 340 billion. If the court does not offer relief, the government must find a solution that ensures the sector remains viable. A duopoly of Airtel and Jio would not be healthy. How the government handles this may be the acid test.
The other, even more complex situation is that involving the unlisted, large PSU, BSNL, and the much smaller but listed PSU, MTNL. After deciding on a merger, the government has now resolved to allow BSNL to manage MTNL without a formal merger in order to avoid the complications of delisting.
However, it has to determine what it will do to energise the process of fibre roll-out across panchayats under the BharatNet programme, which is behind schedule. It also has to address overstaffing problems in the PSUs and engineer a financial turnaround for these loss-making entities. BSNL aims to capture 25 per cent share in the overall mobile market by the end of 2025.
While it seems unrealistic, it would be desirable for both BSNL and Vi to recover their health. A sector with four competitive entities would be much healthier than one with two and a half players.
Looking forward, there are opportunities aplenty for creating new revenue streams and expanding existing ones. Tower companies, hyperscalers, data centres, ride-hailing services, digital start-ups and electronics manufacturers are all dependent on telecom in different ways and all benefit from the externalities of the sector. The volume of digital transactions is increasing, driven by the fast growing e-commerce and quick commerce sectors.
Every sector of the economy, from heavy industries and construction to power, logistics and retail, is digitalising, as are practically all government services. As 5G catches on, use cases and enterprise solutions are bound to develop around the new fast networks. As IoT penetration increases, there will also be more M2M data flows.
Telecom companies would be well placed to pick up a chunk of that business. Artificial intelligence (AI), and the data analytics it enables, could be another frontier. R&D in 6G and developments in AI are also nascent domains where telecom companies can play a big role in developing intellectual property.
The telecom sector has been through many vicissitudes over the years. But it now seems to be entering a new phase where there is more upside than downside. Monetising all these opportunities will require telecom companies to transform themselves by developing capacities and skill sets in new domains. Policymakers too must be flexible and agile, and react quickly to changes in sector dynamics.
Devangshu Datta
