The rise of the Indian telecom industry has been nothing short of spectacular. In the past two decades, it has grown to touch the lives of over a billion people, who now have access to telecom (especially mobile) connectivity, including around 650 million who have broadband connectivity. It has come a long way from the launch of the first National Telecom Policy, 1994. The policy was drafted to give direction and a fillip to the fledgling industry, a function it has delivered extraordinarily. It took the country’s telecom subscriber base from less than 1 million in 1998 to 100 million in less than 10 years in 2006. As of October 31, 2019, the telecom user base stood at 1.2 billion, realising an overall teledensity of 91.17 per cent.
Already, India’s telecom industry is the second largest and the fastest growing in the world. Hereon, the user base will only increase. The sector has also been a significant growth driver for the economy in terms of investments, job creation and revenues to the government. It contributes 6.5 per cent to India’s GDP.
In the past 20 years, the industry has provided connectivity to over 500,000 villages. It has also created the largest telecom network infrastructure in the world, with the number of base transceiver stations crossing 2,233,063 as of end 2019. The reason for this exceptional growth has been timely policy and regulatory reforms. For instance, the successive telecom policies in 1999, 2012 and 2018 paved the way for some major structural changes in the sector. Apart from this, technological advancements, rising user demand, and initiatives taken by operators and tower companies have all contributed to the spread of the telecom network to even the remotest corners of the country.
The first 10 years
In the evolution of the telecom industry, perhaps the single most defining event was the opening up of the sector to private enterprises. It facilitated competition and eventually led to affordable services for the masses. In fact, India’s telecom services are one of the cheapest in the world.
The first 10 years (2000-10) for the sunrise sector were transformative. Adrenaline was high and new lucrative opportunities were plentiful. Every reputable business house wanted to be a part of the growth story. The Tatas and Birlas joined the party, along with Essar, Reliance, etc. It was also a profitable business for handset makers, infrastructure providers and other ancillary businesses.
Mobile telephony picked up and soon became the driver of user and revenue growth in the industry. In 2003, Reliance Communications (RCOM) introduced what it called Monsoon Hungama, which though disruptive in pricing made a handset and a connection available to the common man for as little as Rs 500. As a result, demand skyrocketed and the user base jumped manyfold.
With the relaxation of FDI norms, international companies such as Hutchison, Vodafone, Singtel, NTT DOCOMO, Telenor and Etisalat came calling, wanting a piece of the lucrative pie. The industry grew from strength to strength and achieved many milestones along the way. By 2010, India was looking at 10-12 players as against a global average of three or four operators. It was an exhilarating period for telecom companies as they recorded healthy revenues and huge profits. Companies also invested heavily in setting up telecom infrastructure during that period.
The next decade
Since 2010, the sector has witnessed many challenges. In 2012, suspecting foul play in awarding spectrum, the Supreme Court cancelled 122 telecom licences allocated to 11 companies on or after January 10, 2008. It was one of the biggest controversies in the country. In its aftermath, investor confidence was deeply shaken. Many new operators and global firms reduced their footprint or shut shop and wrote off their investments in the Indian telecom sector.
After the 2G debacle, the roll-out of 3G and broadband wireless services took inordinately long. 3G airwaves were auctioned late and at a price that was very high even by global standards. Competition drove operators to outbid each other at spectrum auctions, driving up their costs. Meanwhile, operators engaging in frequent tariff cuts to stay ahead of the game faced falling ARPUs. This, along with increasing capex requirements to roll out 3G services, impacted their profitability and increased debts.
At a time when the industry was already facing a financial slowdown, Reliance Jio Infocomm Limited entered the telecom sector in 2016 with aggressively low tariffs. It offered free voice calls and 4G data services with massive discounts. This triggered a brutal price war and encouraged more consolidation, but also led to the collapse of small mobile operators such as RCOM and Aircel, which surrendered to cost pressures.
Today, there are only three private players in the country. Bharti Airtel, Vodafone India, which joined hands with Idea Cellular to create a telecom giant, and Reliance Jio. However, the bruising price war has pushed the three incumbents into a financial crisis with high debt and low profitability. Vodafone Idea’s net debt stood at Rs 1.02 trillion as of end-September 2019, while Bharti Airtel’s net debt stood at Rs 1.18 trillion. It is expected that the competitive intensity will continue till Jio’s revenue market share exceeds that of Airtel.
Further, the recent Supreme Court ruling on the adjusted gross revenue issue in favour of the government will have grave implications for Bharti Airtel and Vodafone Idea. The total dues of the two incumbents are calculated at Rs 900 billion.
Challenges and the way forward
Today, the telecom industry finds itself at a crossroads. While entrepreneurship, technological advancements and consumer needs are growing rapidly, government regulation and policy are perhaps a little out of sync. Regulatory attention is being questioned, especially in terms of Jio’s disruptive market practices. Also, many believe that the entire regulatory and policymaking apparatus needs an overhaul to become more nimble and in step with the needs of a digital nation.
Although many milestones were achieved in the past two decades, like infrastructure sharing and the launch of mobile number portability, the industry is still struggling with a growing debt pile. The carriers are also grappling with multiple litigations with the government over old tax matters and interconnect usage charges, among others. Quick dispensation of decisions on these issues could alleviate some of the pressures the industry. Since there are only three private players left in the telecom sector, any more exits could lead to a duopoly or monopoly, which would be disastrous and undesirable for the country.
The past decade also saw the decline of telecom PSUs like Bharat Sanchar Nigam Limited (BSNL), which is now mainly an agent for implementing government connectivity programmes. According to one school of thought, if BSNL is unshackled from the unrelenting political interferences, it could become a formidable player to challenge private sector operators. With its vast telecom network across the country, BSNL could provide telecom connectivity to many underserved pockets of the country.
The relentless demand for mobile data and speed from new-age consumers is a silver lining for the telecom industry. The roll-out of 4G services and the relatively cheap data tariffs have been fuelling the shift from a voice-centric market to a data-centric market. In fact, India is now the fastest growing data market in the world.
With the industry expected to add 500 million new internet users over the next five years, various BWA technologies such as LTE and IoT hold immense potential. In this context, a well-enabled data ecosystem is a good way forward. It will also facilitate government programmes such as Digital India and BharatNet, which are aimed at bridging the urban-rural digital divide. The telecom sector is poised to witness strong growth in the coming years with its renewed focus on the rural segment, a potential market that has remained untapped for years as there are still over 62,443 uncovered villages in India which the government plans to connect.
For the sector to move in the right direction, operators and policymakers must keep the end user in focus. The limited number of carriers left in the telecom space are saddled with debt and other issues to create any differentiated consumer strategy. As a result, telecom users are dealing with poor network coverage, frequent call drops and an inefficient complaint redressal system. This needs to be corrected.
In conclusion, with the National Digital Communications Policy 2018 aiming to attract $100 billion in investments by 2022 and mobile internet and rural segments emerging as future growth drivers, the potential for the once poster child of India’s liberalisation efforts still remains bright.
By Shampa Bahadur