When viewed through a 20-year lens, the telecom sector’s journey has been momentous. The sector has witnessed unprecedented growth and extraordinary disruptions, but most importantly, it has connected and transformed a billion lives.
The sector’s success can be attributed to a series of essential policy and regulatory reforms, which facilitated the entry of several new and established companies with a global vision into the sector. In fact, opening the sector to private operators was a watershed moment as it resulted in greater competition, and thus increased reach and affordability. The country achieved the 1 million subscriber mark in 1998, crossed 100 million in 2006 (in less than 10 years), and has now soared to over a billion subscribers.
Affordability and demand for mobile services grew in 2003 when the “calling party pays” regime was introduced, which made incoming calls free, providing a major impetus to mobile adoption. Over the years, voice tariffs have continued to decline and are close to zero now. They are also amongst the lowest in the world.
Alongside, the sector has witnessed major advancements in network technologies, and the increasing availability of affordable devices and a services ecosystem. But the journey has not been without challenges. Over the years, hyper competition, increasing capex requirements, exorbitant spectrum prices and high levies have hit telcos’ profitability and crippled their balance sheets. The sector today is saddled with a debt of close to Rs 7 trillion, and operators are finding it extremely difficult to break the cycle of high debt and low profitability.
tele.net rewinds the past 20 years to highlight some of the key themes, the big successes and major setbacks…
Mobile: The heart of India’s telecom growth
Looking back, it is clear that the uptake of mobile telephony brought in the telecom revolution in the country. The uptake was fuelled by policy reforms, the availability of low-cost handsets and the rising popularity of prepaid connections (the launch of recharge coupons with denomination values as low as Rs 10 and lifetime validity schemes on prepaid cards). In recent times, mobile phones have managed to revive India’s broadband story as well. Around 650 million users today access data on their mobile phones. India is amongst the highest mobile data consuming countries in the world. In fact, mobile phones have been the first digital screens for many consumers in the country.
Progressive reforms: Policy and regulatory impetus
Successive telecom policies in 1999, 2012 and 2018 have paved the way for structural reforms in the sector. The setting up of the Telecom Regulatory Authority of India (TRAI) and the Telecom Disputes Settlement and Appellate Tribunal in the late 1990s, and the introduction of FDI in the sector were key policy moves. The National Telecom Policy (NTP), 1999, allowed operators to move from the fixed licence fee regime to a simpler revenue sharing regime. Later, in 2003, the sector moved to the unified access service licence regime, which cleared the way for operators to offer any type of service using any technology. The increase in FDI from 49 per cent to 75 per cent in 2005, and later to 100 per cent in 2013, has allowed considerable funds to flow into this capital-intensive sector.
Over the years, the government has created a roadmap for spectrum management, which includes spectrum trading and sharing, relaxation of spectrum holding caps, and introduction of merger and acquisition guidelines. The introduction of mobile number portability and virtual network operators in the sector are other key policy developments. The NTP, 2012, among various other issues, focused on improving broadband proliferation and delinking spectrum from licences. The telecom tower industry was granted infrastructure status in 2011. Meanwhile, in 2016, the government notified the right-of-way (RoW) rules for the speedy roll-out of telecom infrastructure.
TRAI has also released several key regulations and recommendations, which have been responsible for sector transformation over the past 20 years. These have been centred around interconnection, protection of consumer interest, quality of service, unsolicited commercial communication, infrastructure sharing, allocation and pricing of spectrum, net neutrality, data privacy, etc.
Recently, the Department of Telecommunications (DoT) released the National Digital Communications Policy, 2018, with the aim to provide a roadmap for digital revolution in the country. It focuses on connecting unconnected Indians and introducing the connected ones to the up and coming futuristic technologies. It has set ambitious targets to attract investments of $100 billion in the digital communications segment by 2022.
Tower power: Pivotal role of the infrastructure industry
In the early 2000s, the telcos started outsourcing their infrastructure business to focus on their core operations. Consequently, several independent tower companies came into existence. These companies shared tower assets to avoid duplication and cut costs. In fact, India pioneered the innovative passive infrastructure sharing business model. The formation of Indus Towers as a three-way venture amongst rivals Bharti Airtel, Idea and Vodafone is a classic case of strategic partnership, a concept that has been replicated in several other global markets. Currently, around 450,000 towers dot the country’s skyline ensuring 24×7 access to telecom services. Over time, these towercos have also forayed into new growth areas such as micro sites, in-building solutions, small cells and Wi-Fi, and have emerged as important participants in the Digital India initiative and the Smart Cities Mission.
Leapfrogging technologies: From minutes to bytes
The shift from voice to data has undoubtedly been the most vital change for the sector in recent times. Data has emerged as the new focal point of growth and competition in the industry, which traditionally generated 75-85 per cent of its revenue from voice. The country’s transition from 2G to 3G had been rather sluggish, while the shift to 4G happened at a fast pace. The telecom sector has been witnessing a data explosion on the back of a maturing 4G ecosystem. The rise of over-the-top platforms and social media networks such as WhatsApp and Facebook, and the adoption of video and other rich multimedia services have also given a significant push to data uptake. The public Wi-Fi space has evolved significantly, with data services now available on trains and other public platforms. The government has given a green signal to in-flight connectivity, which will allow users to access data during air travel. The industry is already looking at 5G deployments, which will pave the way for the large-scale adoption of new-age technologies such as internet of things (IoT) and artificial intelligence.
Fibre focus: OFC gives a major facelift to wireline
The wireline segment, largely based on copper, has struggled to keep pace with the wireless segment. In 2004, mobile users surpassed the fixed line user base in India. From 40 million in 2005, the wireline user base reduced to 25 million by 2015. The segment, however, is now back into the limelight owing to the growing use of optic fibre cable (OFC) to transmit high bandwidth. Robust fibre networks are being seen as the fundamental infrastructure on which India’s digital growth will ride. Fibre-to-the-x is the future of broadband and players such as Airtel and Jio are already looking at it as the next battleground.
Blurring boundaries: Integrating telecom with digital
From a technological point of view, the sector has changed dramatically. The industry is now witnessing an explosion of digital services such as mobile payments, e-governance and mobile entertainment. In search of alternative revenue streams, telcos have moved beyond their traditional roles and invested in synergistic services such as mobile financial services and IoT. They are building their content portfolios with offerings in the areas of music, entertainment and education.
Rural recharge: Growing aspirations, immense potential
For the longest time, India’s telecom narrative has been centred on urban India, with rural users always playing second fiddle to their urban counterparts in telco strategies. The scenario is now changing as rural consumers are exhibiting a huge appetite for data services owing to declining data tariffs and smartphone prices. In terms of social media usage, rural users have surpassed urban users. Of the nearly 650 million data users in the country today, close to 40 per cent belong to rural India. The face of rural telephony in India is also fast changing with the implementation of the government’s BharatNet project, which aims to bring broadband connectivity to 250,000 gram panchayats.
BSNL blues: Rise and fall of the telecom PSU
Incorporated in 2000, Bharat Sanchar Nigam Limited (BSNL) became the largest mobile operator in the country after launching its services in 2002. Until 2008, it was the market leader in the wireless and wireline space. However, competition from private players, capacity crunch, political interference, and the inability to evolve with the changing telecom market started telling on the company’s performance. In addition, operational issues, depleting reserves on account of spectrum payments, dwindling wireline revenues, and increasing manpower costs have led to severe losses over the years. Recently, a bailout package has been announced, which proposes the merger of BSNL with MTNL.
Market consolidation: From too many to too few
During 2000-10, the telecom sector took giant strides to transform from a fledgling industry into one of the world’s fastest growing markets. This was the golden period for the sunrise sector, and every other corporate worthy of the name wanted to reap its fortunes in mobile telephony. Essar was one of the first companies to enter the fray. The Tatas, Birlas, Reliance and Videocon were not far behind. A host of foreign companies also made a beeline for India, propelled by relaxation in FDI norms. The key among these were Hong Kong’s Hutchison, Japan’s NTT DOCOMO, Norway’s Telenor and the UAE’s Etisalat, to name a few. Between 2008 and 2010, the Indian telecom space became very crowded. The presence of 10-12 players was a deviation from the global average of three to four operators, and presented a unique though unsustainable business model.
The cancellation of 122 controversial telecom licences by the Supreme Court in 2012 deeply affected the investor confidence as well as the fate and functioning of most of the new operators. Many big global names wrote off their investments in the Indian telecom sector while others reduced their footprint. This ushered in the first major wave of consolidation in the sector, weeding out non-serious players from the sector. The second wave came in 2016, with the dramatic and disruptive entry of Reliance Jio, which took competition to the new level, eventually pushing the industry into a financial crisis. Pan-India players like Reliance Communications and Aircel succumbed to cost pressures and filed for bankruptcy while bigwigs like Vodafone India and Idea Cellular joined hands in an unprecedented move. While Airtel too has bled profusely in this turmoil, it has managed to stay the course.
Smartphone surge: Handset revolution
The early 2000s was an era of feature phones that were fairly basic, enabling users to access voice services. Affordable handsets have been a key driver of mobile service uptake. By 2010, the country saw a handset revolution, with multiple new brands innovating with devices, particularly to drive value-added services.
The past two decades have been nothing short of revolutionary for the Indian telecom sector. There has been a perceptible growth in the number of telecom users, foreign and domestic investments, industry revenues, and service coverage to the remotest corners of the country. From being a luxury service to becoming a mass utility, telecom has positioned itself as a core infrastructure service, one that touches and transforms the maximum number of lives.
The sector has been bleeding for some years now. The issues plaguing the sector can be addressed with a relook at the existing levies and spectrum prices, among other initiatives. There are several other issues, old and new, that continue to plague the sector. Local telecom equipment manufacturing has not taken off as the majority of the telecom equipment is still imported. In the handset space, Indian players are continuously losing ground to Chinese smartphone companies. On the policy front, high sector levies, RoW issues and the deteriorating quality of service require immediate attention. Further, a thriving app economy, driven by data services, has brought to the fore a new set of challenges around cybersecurity, data protection, net neutrality, etc.
The long-term outlook for the sector remains bright. The sector is at an inflection point on the data front, similar to the mobile phone revolution witnessed in the 2000s. There is still 50 per cent of the country’s population that has no access to the internet, indicating a huge untapped demand. Going forward, telecom will be at the forefront of turning India into a digitally charged up economy. s
By Akanksha Mahajan Marwah