In 2020, telecom became an even more essential service for the country. The Covid-19 pandemic accelerated the digitalisation of many sectors, creating unprecedented demand for high speed and reliable connectivity. The mass adoption of contactless solutions and virtual collaboration tools acted as a stimulus for the creation of new-generation networks and digital infrastructure across the country.

Among the transformational changes that the pandemic ushered in, the coming-of-age of fibre broadband was the most prominent one. Fibre  emerged as an ideal medium to deliver high speed data as the country shifted to tele-working and virtual education.

Several new-age technologies such as cloud, virtualisation, automation, artificial intelligence, and augmented and virtual reality, which have been trying to find ground in India, went mainstream during 2020 as businesses and individuals aligned with the new normal.

The surge in the uptake of digital services led to a significant revenue growth for telcos. The industry’s ARPU improved through the year and witnessed an uptick quarter after quarter on the back of massive 4G consumption. Another key highlight of 2020 was the Supreme Court’s decision to allow telcos to pay their past adjusted gross revenue (AGR) dues in a staggered manner. The decision came as a breather for Bharti Airtel and allowed it to divert funds to modernise its networks to make them future ready. For the beleaguered Vodafone Idea (Vi), the judgment offered a new lease of life. While it is yet to be seen whether Vi can survive competition in the medium term, this relief in AGR dues has definitely pulled it back from the brink.

Meanwhile, Jio continued on its profitability trajectory. Unfazed by sectoral financial stress and the raging pandemic, the company went on to raise over Rs 1.5 trillion in investments from marquee international investors. The telco, however, has started facing competitive pressures from rival Airtel in terms of ARPU growth and subscriber additions.

While India was unable to join the global 5G club in 2020, the telcos worked relentlessly on developing an India-focused 5G ecosystem. As such, they should be able to launch 5G services smoothly and without any delay once spectrum is available for sale in 2021.

A look at the sector highlights of 2020, and the outlook for 2021…

Key highlights of 2020

Data deluge

The Covid-induced lockdown had a significant impact on data traffic, which increased to 12-15 GB per month per user, driven by the adoption of work-from-home practices, increased uptake of videoconferencing, and enhanced use of over-the-top (OTT) entertainment apps with HD content. The largest share of this traffic increase was absorbed by the fixed residential networks. On the consumer side, the pandemic accelerated customer demand for digital technologies, channels, platforms and products. In the enterprise segment, the pandemic forced companies to increase their spending on remote work enablement and cloud adoption. Increased work-from-home also positively impacted the demand for cloud-based virtual desktop infrastructure and collaboration tools.

Fibre gets its due

Covid-19 has underlined the importance of fixed broadband networks. Fibre is now being considered as essential and an absolute must for supporting next-generation, data-intensive networks. Going forward, as work-from-home becomes mainstream, the industry will see significant telco investments in the fixed broadband space as they vie for a slice of this lucrative market. As per GlobalData, fixed broadband revenues in India are predicted to increase at a compound annual growth rate of 6.9 per cent during 2020-25, driven by an increase in broadband ARPUs due to the increased adoption of higher-value broadband plans by consumers.

Demand moves indoors

During the year, traffic increasingly shifted from commercial and public areas to residential and suburban areas. This can be attributed to the increased trend of work-from-home on account of lockdown restrictions. As the majority of the population was confined indoors, superior indoor telecom connectivity became a prerequisite. Interestingly, the indoor bandwidth requirement seen in the past 10 months has been the highest ever. As a result, in-building solutions (IBS) such as small cells and Wi-Fi have seen huge demand. Telcos and internet service providers have ramped up the deployment of IBS significantly to provide a good indoor network experience. They have also focused on fiberisation of buildings to cater to the burgeoning demand. Going forward, telecom infrastructure providers can take up the role of independent neutral hosts to provide IBS in a non-discriminatory, transparent and cost-effective manner, and permit access to all telecom service providers through the sharing model.

AGR respite

Putting an end to the AGR issue, the Supreme Court, on September 1, 2020, granted telcos a 10-year timeline to pay their outstanding AGR dues. Telcos can now make payments in annual instalments till March 2031, after making a 10 per cent upfront payment by March 2021. The judgment gave aggrieved telcos such as Bharti Airtel and Vi some breathing space and some much-needed respite on the cash flow front.

Telcos to techcos

The Covid-19 crisis acted as a catalyst for telcos to transform into digital companies and tap the opportunities emerging from the new work-from-home trend. Telecom operators further strengthened their efforts to move away from merely selling connectivity to selling service-enabling digital platforms or experiences to both end-user consumers and business-to-business (B2B) customers. B2B or enterprise customers have become an important revenue centre for telcos. While the level of technology adoption among enterprises has been rising over the past few years, the pandemic accelerated the speed of enterprises’ digital transformation, creating a strong demand for telco solutions. During the year, Vi announced its plans of transforming from a telco to a techco and partnered with several companies to build a dynamic portfolio of products and services for enterprises. Bharti Airtel too actively forged ties with global vendors to scale up its offerings for enterprise customers. All three private telcos also explored opportunities in the small- and medium-sized business segment.

ARPUs move north

The increasing proliferation of work-from-home, videoconferencing and other forms of online business communication, along with the massive uptake of OTT streaming services, led to a surge in data consumption, which, in turn, translated into ARPU growth. On an annual basis, Airtel’s ARPU grew by 26.6 per cent between the quarters ended September 2019 and September 2020, a much higher growth than that of both Jio (13.3 per cent) and Vi (11.2 per cent). During the reported quarter, Airtel recorded the highest ARPU in the industry at Rs 162, with Jio following at Rs 145 and Vi trailing at Rs 119. The need for higher and more stable ARPUs brought the post-paid segment into the spotlight in 2020. So much so that Jio too shifted its focus from prepaid to post-paid plans. According to India Ratings and Research, Jio’s move indicated a shift towards higher earnings and reduced competition in the telecom space. Further, Jio’s move can be seen as an attempt to improve industry-level ARPUs. ARPU growth is extremely crucial for the long-term sustainability of every player in the sector.

Jio’s fundraising spree

At a time when global investors were losing their appetite and were wary of writing out new cheques to fledgling tech companies, Jio Platforms, a three-and-a-half-year-old tech firm, roped in one marquee global investor after another to raise over Rs 1.5 trillion in 2020. Facebook’s Rs 435.74 billion investment for about 10 per cent stake in Jio was the largest foreign direct investment for a minority stake in an Indian tech firm ever. Google, with an investment of Rs 337.37 billion for a 7.73 per cent stake, emerged as the second largest investor in the company. This is Google’s biggest-ever investment in an Indian company till date. Other investors include Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, the Abu Dhabi Investment Authority, TPG, the Public Investment Fund of Saudi Arabia, Intel and Qualcomm Ventures. The deals affirmed the global investor community’s confidence in Jio Platforms’ ability to tap into India’s digital potential.

Focus on self-reliance

Giving a new impetus to the Make in India mission, the government, in June 2020, launched the production-linked incentive (PLI) scheme to boost electronics manufacturing in the country. The scheme aims to reverse the trend of importing material for phones and encourage companies to set up manufacturing hubs in India and export to other markets. In October 2020, the Ministry of Electronics and Information and Technology approved proposals from 16 eligible mobile manufacturing companies, including global players such as Samsung and Foxconn, under the scheme. Later, in November 2020, the cabinet gave its in-principle approval for bringing telecom and networking products under the ambit of the PLI scheme. These include products such as ore transmission equipment; 4G/5G, next-generation radio access network and wireless equipment; and access and customer premises equipment. To this end, the government is expected to give incentives worth Rs 121.95 billion over the next five years.

Outlook for 2021

The Covid-19 pandemic has propelled India’s broadband market into a phase of hypergrowth. Going forward, in 2021, accelerated broadband proliferation will emerge as a key theme for the sector. Both the wireless and wired broadband segments will see further growth in 2021, as remote working and learning are likely to continue until a mass Covid-19 vaccination drive takes place across the country.

The optic fibre cable market, in particular, reached an inflection point in 2020. Until 2020, the industry focus had been on serving big urban centres, and that is where the bulk of the fibre was deployed. However, Covid has created a significant demand for digitalisation in Tier 3 and Tier 4 markets, pushing telcos to move fibre to smaller cities and rural areas. The government’s announcement, in August 2020, to provide fibre connectivity to 600,000 villages by 2023 will further support broadband proliferation in the country.

A big fillip to the broadband market will also come from the implementation of the Prime Minister Wi-Fi Access Network Interface (PM-Wani) project. The project, though envisaged back in 2017, finally received  cabinet approval in December 2020. Under the project, Wi-Fi hotspots will be set up in multiple public places such as grocery stores, tea stalls, restaurants and hotels to lighten the load on wireless services. Public Wi-Fi hotspots will emerge as affordable means for mass public connectivity, thereby enhancing digitalisation across the country.

Meanwhile, on the home broadband front, the spotlight will continue to shine on fibre-to-the-home in 2021 and beyond. The home networking industry will also see technologies such as Wi-Fi6 and SD-WAN making their way into consumer homes. Wi-Fi6 brings significant improvements in speed and range compared to the current Wi-Fi iterations. It also features network intelligence, analytics and power efficiency.

Further, 4G coverage expansion will continue to be a key priority for telcos during the year, even as 5G soft launches expectedly take place towards the end of 2021. The upcoming spectrum sale, in March 2021, will see telcos bid for airwaves in the six 4G bands on offer between 800 MHz and 2500 MHz, to enhance their 4G coverage and reach across the country. Growth in 4G users will translate into higher industry ARPUs in the coming quarters.

Telcos are also expected to dial in the next round of tariff hikes over the coming one or two quarters, which will further push up industry ARPUs. Industry analysts believe that telcos are likely to hike tariffs by 15-20 per cent through 2021. A report by Motilal Oswal states that a 20 per cent tariff hike could drive up Vi’s ARPU to Rs 140 in 2021-22, Jio’s to Rs 167, and Bharti Airtel’s to Rs 178. As per ICRA, in light of the higher funding requirements arising from the sizeable payouts towards AGR liabilities, spectrum purchase, regular revenue sharing with the government and auction instalments (starting 2022-23), it is imperative for the players to embark on sustainable and sizeable expansion in ARPUs.

That said, debt continues to remain the Achilles heel of the industry. As per ICRA, the debt levels are expected to increase further to Rs 4.7 trillion as on March 31, 2022, owing to the accumulation of AGR liabilities and spending on spectrum auctions.

By Akanksha Mahajan Marwah