The year 2018 proved to be a challenging one for the telecom sector. While intense competition and pricing pressures continued to erode the sector’s profitability, the launch of the National Digital Communications Policy (NDCP), 2018, gave renewed confidence to the industry. Members of key telecom associations share their views on the industry’s performance during the past year, challenges facing the sector and the way ahead…
How was the telecom sector’s performance in 2018?
Today, India is the world’s second largest telecom market, with around 1.19 billion subscribers as of October 2018. India is also the second largest country in terms of internet subscriptions, with 560.01 million internet subscribers as of September 2018. Further, our country now ranks second globally in terms of application downloads.
The telecom sector underwent a revolutionary transition in 2018. The sector witnessed consolidation involving telecom operators like Idea-Vodafone and Bharti Airtel.
The telecom sector’s performance in 2018 was excellent in terms of customer growth and data consumption. However, 2018 was also the first full calendar year of disruptions, marked by unlimited free voice calling and data-bundled tariff plans, which impacted the top-line growth of incumbents. Their profits also shrank due to the lack of all-IP networks. The year 2018 also saw accelerated all-round deployment of 4G networks, which is essential to make lower tariffs viable. Further, the telecom sector witnessed large-scale consolidation, leaving only one government and three private licensed telecom service providers (TSPs). In such a scenario, mobile virtual network operators (MVNOs) play an important role of facilitating competition post consolidation.
What are your views on the prevailing policy and regulatory scenario?
In a bid to propel the sector on a growth path, the government recently launched the NDCP, 2018, which aims to attract investments worth $100 billion and generate around 4 million jobs in the telecommunications sector by 2022. Further, the prime minister’s initiatives such as Digital India, Skill India and Start-Up India, launched to take the nation forward digitally and economically, are steps in the right direction. The foreign direct investment cap in the telecom sector has also been increased from 74 per cent to 100 per cent.
The year witnessed the launch of the new telecom policy called NDCP, 2018, which aims to transform India into a digital society. It promotes the adoption of futuristic technologies such as 5G, fiberisation, cloud computing, blockchain, machine-to-machine (M2M) communications, internet of things (IoT), artificial intelligence and virtual reality. It also aims to provide
1 Gbps broadband connectivity to all gram panchayats by 2020 and 10 Gbps by 2022, ensure India’s digital sovereignty, and attract $100 billion worth of investments in the telecom sector. In addition, the government has taken initiatives like Make in India and Digital India, and launched the preferential market access (PMA) policy.
The NDCP was introduced in 2018. It is indeed a progressive policy, which recognises the importance of digital India in all its facets. The policy has put forth ambitious targets and laid down enabling frameworks for achieving these targets. On the regulatory side, the year 2018 saw many consultations and recommendations based on them. The most notable ones were on privacy, security and ownership of data and making information and communication technology accessible for persons with disabilities.
What are the challenges facing the industry?
Several on-ground regulatory and policy issues need to be addressed by the government. These include the declining adjusted gross revenue and the high licence fee imposed on telcos and small internet service providers (ISPs).
“With 70 per cent of the population living in rural areas, the rural market will be a key growth driver in the coming years.” Rajesh Chharia
Despite all efforts and schemes, we are yet to connect several unconnected areas in the country. Last-mile connectivity is still a challenge. Recently, the progress of BharatNet has been questioned by the prime minister and DoT. The project has reached halfway with 301,154 km of optical fibre cable laid and 121,652 gram panchayats covered so far as against the targeted 250,000 gram panchayats to be covered by March 31, 2019. Further, telecom operators are languishing under debt and financial stress of about Rs 7.5 trillion. Government initiatives including the Phased Manufacturing Programme have helped India achieve its production targets one year ahead of schedule. On the other hand, there are reports that Samsung is planning to close down mobile handset manufacturing in India due to high duties. The Modified Special Incentive Package scheme has been closed and new schemes for credit guarantee and interest subventions are likely to be announced in 2019. Meanwhile, 5G remains a highly debated topic. The industry feels that the current environment is not conducive for undertaking huge investments in next-generation connectivity, considering the prevailing financial stress.
“There is a need for out-of-the box thinking and a strategy that fills the gaps between policy and implementation.” N.K. Goyal
The key challenges facing the industry are essentially investment related. Fast changing technology necessitates continuous investment in networks and related services to even maintain market share, let alone increasing it. The lack of investment in state-of-the-art technology results in higher costs and opex, and suboptimal fulfilment of customer expectations. Even before investments in 3G networks were fully monetised, heavy investments in 4G LTE were initiated. While 4G roll-out is still under progress, the sector is likely to see 5G spectrum auction in 2019. As the country is still not prepared for the large-scale commercial deployment of 5G, both in terms of technology readiness and availability of use cases, the spectrum auction in 2019 is likely to cause further financial strain in the sector.
“The NDCP is indeed a progressive policy, which recognises the importance of digital India in all its facets.” R.K. Upadhyay
Do you have a regulatory wish list?
Some regulatory issues hampering the growth of the industry pertain to infrastructure sharing, data interconnection and roaming, and content and website blocking.
Fixing a realistic reserve price for spectrum auctions has always been an essential need and demand. From a virtual network operator (VNO) point of view, timely policy and regulatory support is required for the nascent segment to grow as it is essential to realise the Digital India vision. A strong and vibrant VNO community is also needed to maintain a competitive environment to the advantage of all stakeholders post consolidation. In many countries a certain percentage of network capacity of the host operators is reserved for MVNOs. Also, in the US, MVNOs have been found to be very effective in the implementation of the government schemes directed towards the fulfilment of universal service obligations. Similar policy interventions need to essentially be undertaken by TRAI and DoT in India. Although the VNO policy was notified by DoT in the middle of 2016, only two MVNOs have been able to launch services so far, that too only in one licensed service area. Further, only one TSP has come forward to host VNOs. This certainly is not a satisfactory situation.
What is your outlook for 2019?
With 70 per cent of the population living in rural areas and with rural telecom penetration at only 58.45 per cent (as of July 2018), the rural market would be a key growth driver in the coming years. Small ISPs having category B or C licences, which provide services and connectivity to rural areas, would invest a significant capital to deliver such services.
Going forward, the country needs to ensure strict implementation of Make in India and the PMA policy to boost local manufacturing. Further, the BharatNet project needs to be rejuvenated. There is a need for out-of-the box thinking and a strategy that fills the gaps between policy and implementation. Further, there is a need to take into account the on-ground situations. For example, while India aims to become a leader in the creation of 5G standards with the help of DoT, the Telecom Engineering Centre, the Telecommunications Standards Development Society of India and the IITs, the actual situation is quite different. Multinational companies have been working on 5G standards for the past six to seven years. Ericsson, Nokia and Qualcomm have about 30,000 5G patents each to their credit. In such a situation, India’s target of becoming the leader in 5G standards seems impractical, especially since we do not have any Indian companies working on 5G.
Tariff disruption is expected to continue in 2019. The main revenue source of TSPs is no longer conventional services like voice and SMS. With data prices crashing, the key revenue driving factor will be digital services delivered using telecom networks. Further, IoT and M2M technologies will gain traction. One thing is sure that the customer will be the king. The outlook is bright and optimism is in the air.