The year 2013 was a mixed bag for the Indian telecom sector. Several policy and regulatory measures were announced for reviving business growth and investor confidence in the sector. However, there has not been any significant development in terms of their implementation. The industry remained divided on crucial issues related to spectrum pricing and allocation. Nevertheless, it has high expectations from 2014 and expects greater clarity on the regulatory and policy fronts. Leading telecom associations spoke to tele.net about the sector?s achievements, issues and challenges, and the way forward…
How did the Indian telecom industry perform during 2013? What were the key achievements and disappointments?
Rajesh Chharia
The past year has been a challenging one for the telecom sector due to several regulatory issues. The industry did not perform up to expectations in 2013. A key disappointment is that there has been no final decision on several crucial issues. The industry, the regulator and the government were involved in deliberations, but nothing substantial has come out of them. That said, in December 2013, the Department of Telecommunications (DoT) was proactive with regard to policy announcements and we hope that such measures revive the industry as well as investor and consumer confidence.
We are optimistic about 2014 as we have received a positive response from DoT with regard to industry association and stakeholder suggestions. Implementation of the unified licensing regime is under way. Further, we expect the government?s target of 600 billion broadband connections to be achieved before 2020, primarily driven by the mobile broadband segment.
N.K. Goyal
The past year has not been good for the industry. The 2G controversy and consequent cancellation of licences had a negative impact on industry sentiments. There were few instances of fresh foreign direct investment (FDI) and investments from domestic sources, and new project announcements. Besides, the telecom equipment manufacturing segment did not register any significant progress.
On the positive side, policy initiatives taken by the government have been commendable. New policies on electronics, IT, manufacturing, cybersecurity, and electronic system and design manufacturing (ESDM) as well as the Modified Special Incentive Package Scheme are expected to revive investment confidence in the sector.
Rajan Mathews
The onset of 2013 brought the promise of policy stability with the implementation of the National Telecom Policy (NTP), 2012. The sector was encouraged by the Telecom Regulatory Authority of India?s (TRAI) willingness to improve the industry?s financial condition, particularly through the directive on the provision of value-added services (VAS) and national roaming. The government?s decision to allow spectrum trading and 100 per cent FDI in the sector were welcomed by the sector. In terms of mergers and acquisitions (M&As), the empowered group of ministers? decision to increase the M&A limit to 50 per cent will have a positive impact on the industry?s long-term growth.
However, DoT?s directives disallowing 3G intra-circle roaming, setting high reserve prices for spectrum auctions, imposing high penalties for minor infractions and defining ?spectrum refarming? in contrast to any accepted methodology, and its unclear stand on licence extension have led to policy uncertainty in the industry.
What are some of the emerging trends in the telecom sector?
Rajesh Chharia
A key emerging trend is the growing uptake of broadband services. It is important that DoT and the government come up with policies that are more in sync with the rapid technology advancements that the broadband space is witnessing.
Further, the government aims to enhance broadband service penetration in rural areas. It has invested around Rs 200 billion in the National Optical Fibre Network (NOFN) for providing broadband connectivity to 250,000 gram panchayats in the country.
While wireless will be a prominent delivery platform for broadband services in the future, primarily due to mobility, the wireline channel will be most suited to provide high speed services. Currently, the speed at which data services are delivered is the most crucial factor in determining the level of broadband adoption in the country.
Further, in India, spectrum is choked as the country has a high user density vis-?-vis European and other developed markets. In such a scenario, wireline solutions need to be considered. The industry is witnessing the growing adoption of optic fibre cable, especially for providing fibre-to-the-home, fibre-to-the-premises and fibre-to-the-curb services. However, development of local content will be crucial for increasing the uptake of broadband services. Rural consumers have a huge appetite for voice and video services and hence there is significant potential for growth in remote regions.
N.K. Goyal
The industry is likely to witness increased activity in areas like cloud computing, 4G services, big data and ESDM.
Rajan Mathews
As the voice market matures further, operators will shift their focus to data and VAS. Adoption of these services will be driven by increased availability of compatible mobile devices and affordable data plans. The growing uptake of smartphones and allied services will require operators to explore business partnerships with VAS and over-the-top players to optimise productivity and profitability.
Besides, in 2014, the industry is likely to witness growing adoption of customised solutions along with increased availability of content and applications in vernacular languages. The growth of data services in urban areas will revolve around high-end applications, enabling improved information access, security, entertainment and communication. In rural areas, services such as m-healthcare, m-governance, m-banking, m-education and machine-to-machine will drive data usage.
What are the key challenges hindering sector growth?
Rajesh Chharia
Policy-related issues continue to be the key challenges plaguing the sector. As per the unified licensing regime, voice and video services are allowed under the internet service provider (ISP) licence. Meanwhile, encouraging the adoption of telecom services in rural areas is important for overall growth of the sector.
N.K. Goyal
The three areas that need immediate attention are ? promotion of indigenous manufacturing in the electronic and telecom sectors, reduction of tariffs, and attracting investments.
Rajan Mathews
While the industry witnessed improvements on the policy, regulatory and operational fronts due to the government?s concerted efforts, there are serious issues that need to be addressed. These include:
? For optimum utilisation of spectrum, allocation of blocks must be harmonised and contiguous. Currently, in India, spectrum allocation is non-contiguous as operators have been allocated airwaves in small chunks at various times. In the recent notice inviting application, DoT proposed the auction of both contiguous (5 MHz blocks) and non-contiguous blocks (of less than 5 MHz) in the 1800 MHz band. However, operators that are not able to acquire contiguous spectrum in the auction will continue to face challenges.
? The proposal to refarm spectrum is not in consonance with policy and licence provisions, which clearly provide for the extension of existing licences that were bundled with allocated spectrum. Operators that hold spectrum in the 900 MHz band will need to replace 286,590 base transceiver stations (BTSs) and install an additional 171,954 BTSs to provide equivalent coverage in the 1800 MHz band. The upgradation and addition of BTSs would entail an incremental capex of Rs 547.39 billion and an incremental annual opex of Rs 117.62 billion. Further, an additional capex of about Rs 266.53 billion will be required to deploy new towers to support the new BTSs.
What are your expectations on the policy and regulatory fronts in 2014?
Rajesh Chharia
Industry associations have approached the government and DoT for liberalising ISP licences. We have also requested them to reconsider and remove the entry barriers for migrating to unified licences. Currently, under the new licence regime, the entry fee and performance bank guarantee (PBG) requirements are not justified. Paying Rs 220 billion as PBG and Rs 150 million as non-refundable entry fee does not translate into a viable business case for any operator.
Further, the government should not demand PBG from ISPs that have already rolled out services. A key reason for collecting PBG is to ensure timely delivery of servics.
N.K. Goyal
Greater clarity is required for implementation of the ESDM policy is required. Also, there is a need for a road map for implementing of policies related to preferential market access and electronic manufacturing.
Rajan Mathews
There is a pressing need for swift and bold policy initiatives from the government for restoring investor confidence and ensuring business sustainability. It is also crucial to rationalise levies and taxes. Indian operators face the highest regulatory costs including service tax and licence fee. Multiple levies account for 30 per cent of the revenues earned by Indian telecom companies as against about 5 per cent in other Asia-Pacific countries. Further, it is important to rearrange the frequency spots prior to the upcoming auction to ensure spectrum contiguity.
