Looking for Stability: Industry associations pin their hopes on NTP 2018

The past year has been challenging for the telecom industry. Several telecom operators continued to suffer financial stress owing to the extended price wars. Meanwhile, regulatory and policy changes like the reduction in interconnection usage charges (IUC) did not help their cause much. The year also saw a remarkable technological leap to 4G services, a sharp increase in data consumption and a decline in voice usage. Going forward, the recommendations of the interministerial group for providing financial relief to the sector and the introduction of the National Telecom Policy, 2018 (NTP 2018) are expected to bring renewed confidence in the industry. Members of key telecom associations share their views on the industry’s achievements, the key issues and challenges, and expectations for the coming year…

How did the sector perform during 2017? What were the key highlights?

Tilak Raj Dua

The year 2017 witnessed a mix of highs and lows. Enabling government initiatives such as allowing 100 per cent foreign direct in­vestment, spectrum management efforts (sha­ring, trading, harmonisation, etc.) and regulatory certainty augur well for the investor community. Global tower companies, pension funds, private equity funds and international sovereign funds have star­ted investing in the Indian tower industry as they view this business as stable, with low technology risks and strong cash flows that promise assured returns.

The key highlights of 2017 were:

• Notification on the duty structure for lithium-ion batteries, which will lower the cost of these batteries irrespective of their application and have a positive impact on energy storage solutions, thus contributing to sustainable tele­com­mu­­nications.
• Under the Goods and Services Tax (GST) Bill, 2017, released on March 28, 2017, Cenvat credit under the “plant and machinery” head will not be available to tower infrastructure providers. Thus, infrastructure providers (IP-1s) will have to include this additional tax component in their overall cost structure, thereby raising the cost of services for telecom service providers.
• In June 2017, the Department of Tele­com­mu­­ni­­cations (DoT) released draft guidelines regarding the proposed optical fibre cable (OFC) corridor along highways/roads under the Pradhan Mantri Gram Sadak Yojana. The guidelines, once finalised, will allow IP-1s to use the common OFC corridor for laying optical fibre along national highways/state highways/district roads/ municipal roads (new construction/expansion of the existing ones), thereby facilitating the provision of high speed broadband connectivity to every nook and corner of the country.

Rajan S. Mathews

The year 2017 was an eventful one for the Indian telecom sector. In the beginning of the year, there was a remarkable increase in the number of mobile wallet users, attributable to the government’s demonetisation drive. There was also an upsurge in the number of data users, mainly be­cau­se operators offered compelling data plans. However, operators continued to struggle with a cumulative debt of over Rs 4.6 trillion, while revenues fell significantly to under Rs 2 trillion. The poor financial health and hypercompetition triggered consolidation.

Further, the year saw the introduction of GST, which was welcomed by the industry in principle but, unfortunately, it meant an unaffordable increase in the tax rate to 18 per cent from around 15 per cent that the sector was paying earlier. Moreover, the telecom regulator’s decision to cut the IUC to Re 0.06 from Re 0.14 per minute is bound to impact the industry’s return on investment. The increased customs duty on equipment imports to encourage domestic manufacturing has caused further problems as the local manufacturing ecosystem is far from ready. Moreover, the net neutrality recommendations have come at a time when, globally, countries are adopting a more market-driven approach in order to not stifle development, innovation, proliferation and internet growth.

T.V. Ramachandran

The year 2017 will surely go down in the annals of Indian telecom as the year of great contrarian happenings, worrisome turbulence and disruption, a deluge of customer benefits, financial stress, much-needed consolidation, and a remarkable technological leap to 4G. The transformation in data uptake following the entry of Reliance Jio Infocomm Limited (RJIL) was remarkable. The year saw not just a sharp increase in data usage but, importantly, a big growth in data-based services such as interactive apps as well as bandwidth-intensive music and video streaming applications.

However, RJIL’s entry led to a very sharp deterioration in the already unsatisfactory financial situation of the industry. Market leaders saw a reduction of as much as 35 per cent in operating profits and a contraction of around 10 percentage points in their operating margins as they looked to match the cost of RJIL’s services. The resul­ting price wars left operators struggling to repay their debt. RJIL’s entry triggered consolidation in the industry with notable merger and acquisition deals taking place. The first was the merger between Vodafone India and Idea Cellular, a combination that is set to create India’s largest operator. In February 2017, Telenor sold its Indian operations to Bharti Airtel and in October 2017, Tata Teleservices Limited (TTSL) sold its business to Bharti Airtel.

The year also witnessed the commen­cement of the major task to revise the NTP. DoT has formed 12 subgroups and begun a very comprehensive exercise for collecting, collating and analysing inputs in various areas that will have a bearing on the telecom policy.

“The year 2018 will be a year of mergers packed with a lot of action, developments, discussions, investments and on-the ground deployments.” Tilak Raj Dua

What are your views on the prevailing policy and regulatory environment?

Rajan S. Mathews

While some of the policy recommendations issued in 2017 adversely impacted the already stressed industry, reducing its profitability even more, the positives were the notification of the ease-of-doing business recommendations by the telecom re­gu­lator and the much-needed right-of-way (RoW) norms by the ministry. Meanwhile, the government formed an interministerial group to look into the financial health of the industry and steps to improve it.

The year 2018 promises to be an interesting one. The government is already working on a new NTP that will define the direction for future policy decisions. We remain hopeful that a stable, predictable and conducive regulatory environment will be created for the sector to stablise and realise its full potential.

T.V. Ramachandran

On the regulatory side, there was significant activity, with comprehensive consultations, recommendations and regulations (as many as 20), like in no single year ever. The regulation on mobile termination charge reduced charges by over 50 per cent, causing much tumult in the industry. Other noteworthy recommendations were the liberalisation of public Wi-Fi, ease-of-doing telecom business, internet telephony, machine-to-machine (M2M) communications and net neutrality.

The year 2017 was also the launch pad for another ambitious technology of the future: 5G. To this end, the government has set up a 24-member, high-level forum for 5G India 2020. For India, 5G will fundamentally impact various national mission projects. It will provide a new dimension to the Digital India, Smart Cities and Smart Village initiatives. Further, it could potentially make huge contributions to the Make in India and Startup India programmes. Thus, Indian telecom closed the year with a firm eye on the future.

What are the key concerns that should be addressed by NTP, 2018? What is your regulatory wishlist for 2018?

Tilak Raj Dua

The new policy should focus on ease-of-doing business and deployment of telecom infrastructure across the country. With a new national telecom policy, and a supportive policy and regulatory environment, the industry is highly optimistic that 2018 will see the settling of regulatory and policy uncertainties such as exclusion of IP-1s from the RoW policy, the absence of a uniform RoW policy in the states, restrictions on the scope of infrastructure providers, lack of infrastructure status benefits pending since 2012, non-availability of the input tax credit mechanism under the GST regime, prioritisation of electricity board connections for mobile towers on preferential tariffs and security of mobile towers.

Rajan S. Mathews

NTP 2018 should ensure predictability in government policy while ushering India into the next decade of technology. We are constantly engaging with the government and have submitted multiple suggestions on various aspects. For instance, regarding the licensing regime, we have asked for a single unified licence and a single network at the national level. Also, no telecom service should be allowed without a licence, thereby ensuring the “same service, same rules”. Further, we have suggested that NTP 2018 should provide a framework for future technologies such as 5G, M2M/internet of things (IoT) and satellite telecommunication, as well as provide for a new policy for the standards and certification of devices. We have also asked the government to continue making additional spectrum available for the growth of the sector in a technology-neutral environment. Further, there should be no delicensing of any spectrum band that has already been identified or is being considered for communication services or below the 2 GHz frequency band (in the non-IMT band). Towards reducing interference in networks, we have requested the government to look into curbing the use of illegal repeaters and jammers.

T.V. Ramachandran

The regulatory wishlist is as follows:

• The methodology of fixing reserve prices for auctions must be amended and should be reasonable enough to reflect the true price of the spectrum.
• When spectrum is obtained through auctions, the spectrum usage charge (SUC) levied should be just enough to cover the cost of administering and regulating spectrum. Currently, the recurring SUC payable is exorbitantly high and anomalous. Once spectrum is paid for through the price discovered in the auction, it is unfair and incorrect to levy a high SUC.
• In the case of both terrestrial telecom and satellite communications, there are many opportunities to significantly improve the ease-of-doing business through specific measures. An open sky policy that encourages private players and the launch of modern satellites to augment the national capacity are urgent requirements. Further, the policy should promote liberalisation to facilitate the introduction of new services like in-flight, maritime and train connectivity.
• NTP 2018 needs to focus on high-quality broadband for all since, without this foundation, the entire edifice of Digital India would crumble and fall.
• The new policy needs to focus on achieving a radical improvement in terms of Wi-Fi hotspots. The liberalisation of permissions or “licensing” for public Wi-Fi hotspots is thus a dire need.
• The new policy should focus on the urgent creation of adequate fibre on the ground for transmission and backhaul to suit the explosive increase in data traffic.
• Although India is the second-largest telecom market in the world, it finds no place in the important fields of innovation, research and development (R&D), and intellectual property rights creation and standards. The new policy needs to address these lacunae.
• The new policy needs to sculpt a different approach towards customer equipment like smartphones, which is distinct from that for active network infrastructure equipment. The Make in India initi­ative also needs a special thrust on telecom.

“The year 2018 promises to be an interesting one. We remain hopeful that a stable, predictable and conducive regulatory environment will be created for the sector to stablise and realise its full potential.” Rajan S. Mathews

What are the key challenges faced by the industry? How can these be addressed?

Tilak Raj Dua

The non-implementation of the RoW Policy, 2016 or the DoT advisory guidelines at the state level impeded the overall roll-out of telecom infrastructure across the country. While states such as Rajasthan, Odi­­sha, Assam, Haryana and Jharkhand noti­fied policies are aligned with the RoW Policy or the DoT advisory guidelines, the remaining states do not have policies aligned with these rules or the advisory notified by the authorities.

Some of the issues that are still pending in the sector are:

• Non-inclusion of IP-1s under the purview of the RoW Rules, 2016.
• Reclassification of common telecom infrastructure and enhancement of scope of IP-1s.
• Non-availability of government land and buildings for tower installations.
• State government telecom infrastructure policies are still not aligned with the central guidelines.
• The issue of arbitrary and exorbitant pro­­p­erty tax on telecom towers at different rates/amounts by different local authorities has been on the rise since the Supre­me Court ruling in December 2016.
• Issues related to the availability of power.

Rajan S. Mathews

The biggest challenge that the industry is facing is its deteriorating financial health. The huge debt burden has become difficult to manage at a time when the sector is facing the worst phase of hypercompetition ever. The next few years will require the sector to go into investment mode to start rolling out 5G services. Moreover, achieving the objectives of the Digital India vision is becoming increasingly difficult due to the lack of funding. Apart from easier payment terms and reduced interest rates for spectrum, we have also asked that the Universal Service Obligation Fund be done away with in a few years as it is not needed any more. A reduced GST rate of 12 per cent that reflects the essential na­ture of the sector, and reduced licence fees and SUC would also be welcome.

“The year saw not just a sharp increase in data usage but, importantly, a big growth in data-based services.” T.V. Ramachandran

What is your outlook for the telecom sector? What will be the key growth drivers in 2018?

Tilak Raj Dua

The year 2018 will be a year of mergers packed with a lot of action, developments, discussions, investments and on-the-grou­nd deployments. The year will present a bouquet of business opportunities for the tower industry because of initiatives like Digital India, Make in India and Smart Cities. The key focus areas for 2018 will be:

• Consolidation: With approvals on mergers and acquisitions of telcos/towercos expected in early 2018, synergies and operational efficiencies will follow the sector, thereby improving tenancy ratios, and rationalising multiplicity and duplicity of towers.
• Extensive roll-out of newer technologies like in-building solutions (IBS), Wi-Fi hotspots, small cells: To meet the growing data demand, the telecom tower industry is extensively exploring opportunities to roll out IBS, Wi-Fi hotspots, small cells, street furniture, etc. in order to optimise and monetise consumer and business services on mobile devices across 3G, 4G and Wi-Fi networks.
• Fiberisation: With less than 25 per cent of towers fiberised, the fibre leasing market represents an opportunity of over $500 million in 2018, which is expected to rise to $2.6 billion by fiscal year 2020. Fiberisation will be undertaken to deliver high speed internet supporting advan­ced technologies such as 5G, virtual reality, IoT and artificial intelligence (AI), and make the Digital India vision a reality. The government’s BharatNet project will contribute substantially to this connectivity mission.
• Smart cities: Provisioning of telecom in­fra­­structure by IP-1s for M2M, IoT, AI, robotics, etc. to support the smart city projects of Delhi, Pimpri Chinchwad, Bhopal, Indore, Vadodara, Indore and Pune will become a reality soon.
• 5G: The government has already created a forum with expert members from the Ministry of Electronics and Information Technology, academia, industry, and DoT, and has committed Rs 5 billion for setting up a testing bed for R&D, as well as developing standards pertaining to 5G in the country in collaboration with the Indian Institute of Technology, Madras. In order to make 5G a success story, in­fra­­structure providers will play a significant role in the development of state-of-the-art robust network architecture.

Rajan S. Mathews

While the year 2017 saw the emergence of a number of new entities such as the Bharti Airtel–TTSL–Telenor combine and the Idea Cellular–Vodafone combine, 2018 is expected to see them come to fruition and take actual shape. Post consolidation, the Vodafone-Idea combined entity could hold as much as 40 per cent market share, closely followed by Airtel with around 38 per cent. With consolidation, telecom service providers will get the benefit of synergy in operations and the overall cost of operations is likely to come down, leading to increased margins. Even­­tually, pricing power could also return, enabling long-term overall sustainability. The biggest expectation is to see the Digital India programme becoming a reality and expanding its ambit to bring the next billion online. The telecom industry continues to remain the backbone of al­most all major mission-mode programmes of the government. As far as new and em­er­ging technologies are concerned, 5G will become a major buzzword in 2018.

T.V. Ramachandran

We believe that while disruptive forces would still have play, 2018 could well mark the beginning of much brighter prospects for the sector. With significant consolidation getting completed in 2018, the bloodletting tariff battles could abate in intensity and the telecom industry will start experiencing the much-needed financial relief. Further, NTP 2018, expected around April 2018, will hopefully usher in a completely new perspective to telecom by transcending it from the voice era to that of data as well as data-based services.

During 2018, two phenomena are going to emerge. One, the data segment is going to grow stronger and the broadband sector will witness tremendous growth in terms of wireless connectivity, Wi-Fi hotspots and fibre layout. Two, the quality of customer experience and quality of networks will determine the success of players in the market.

The other important issue will be how companies use their platforms to create fresh revenue streams. Last, but not the least, India would be charting its way forward to the 5G world, which will provide a huge impetus to innovation, manufacturing and entrepreneurial initiatives. We are confident that the country would further consolidate and appreciably improve its position in global digital rankings.