7 PM | Telecom sector in India | 27 February, 2019

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Context

Bharti Airtel Chairman Sunil Mittal said the government must support the telecom sector by keeping the price of spectrum at reasonable levels and lowering various levies.

Fast facts

• The telecom market can be split into three segments – wireless, wireline and internet services.
• The wireless market comprises 98.1% of the total subscriber base. India’s telephone subscriber base has expanded at a CAGR of 19.6%,
• India is the world’s second-largest telecommunications market, with around 1.2 billion subscribers as of September 2018.
• In rural areas, the tele density is far lower (56.9%) than that in urban India (171.1%).
• Foreign Direct Investment (FDI) cap in the telecom sector has been increased to 100% from 74%. out of 100 per cent, 49 per cent will be done through automatic route and the rest will be done through the FIPB approval route.
• The Government of India has introduced Digital India programme under which all the sectors such as healthcare, retail, etc. will be connected through internet

Challenges faced by telecom sector

1. Financial Health of the Sector: Gross revenue has dropped by 15% to 20% for the year 2017-18 over the preceding year for the incumbents and overall sector revenue has dropped. Also, there is drop in voice and data revenue per user
2. Limited Spectrum Availability: Available spectrum is less than 40% as compared to European nations and 50% as compared to China. Hence, it is imperative that spectrum auctioning at sustainable prices is the need of the hour. Also, government auction spectrum at an exorbitant cost which makes it difficult for mobile operators to provide services at reasonable speeds.
3. High competition and tariff war: Competition heating up post entry of Reliance Jio. Other telecom players have to drop in tariff rates both for voice and data
4. Lack of Telecom Infrastructure in Semi-rural and Rural areas: Service providers have to incur huge initial fixed cost to enter semi-rural and rural areas. Key reasons behind these costs are lack of basic infrastructure like power and roads, resulting in delays in rolling out the infrastructure.
5. Lack of trained personnel to operate and maintain the cellular infrastructure.
6. Delays in Roll Out of Innovative Products and Services: Substantial delays in roll out of data-based products and services are hampering the progress of telecom sectors. This is primarily due to the non-conducive environment resulting out of government policies and regulations.
7. Low Broad Band Penetration: Low broadband penetration in the country is a matter of concern and the government needs to do a lot more work in the field to go up in the global ladder.
8. Over the top services: Over the Top (OTT) applications such as WhatsApp, OLA, Viber and so on do not need permission or a pact with a telecommunications company. This hamper the revenue of telecommunication service provider.
9. License fee: The license fee of eight per cent of the Adjusted Gross Revenue including five per cent as Universal Service Levy (USL) is one of the highest in the world.

Steps taken by government

1. Infrastructure status: The National Digital Communications Policy (NDCP) 2018 accorded telecom the status of critical and essential infrastructure. This would help operators in reducing capex and operational expenditure.
2. Ease in Merger & Acquisition guidelines: Ease in M & A helps the sector to consolidate. Today there is consolidation in the sector leading to 4-5 operators in each of the service area, similar to the global average. There is also spectrum consolidation with each operator holding reasonable quantities of spectrum.
3. Revival of the National Optic Fibre Network: This enhance broadband connectivity. With the rising subscriber base, thrust on data services has enabled a smartphone revolution.
4. Payment bank initiative: Operators have received in-principal approval from the RBI for Payments Bank license, which is expected to aide in customer retention and enables them to build on their M-Payment services.
5. Mobile virtual network operators: Introduction of the concept of mobile virtual network operators (MVNOs) by the regulator are expected to open up new opportunities for operators such as wholesale revenue stream.
6. New national telecom policy: The Telecom Commission, the highest decision-making body of the telecom ministry, has given its nod to the new telecom policy. The policy proposes to invite sustainable investment over a period of time and promote fair competition. The National Digital Communications Policy 2018 has envisaged attracting investments worth US$ 100 billion in the telecommunications sector by 2022.
7. Smart cities initiative: The Indian Government is planning to develop 100 smart city projects, where IoT would play a vital role in development of those cities.

Conclusion

All the digital initiatives of the government including digital identification and authentication, e-Know Your Customer, digital finance depend heavily on the telecom and broadband infrastructure.  Economic survey 2017-18 also underlined that the ‘crisis’ being faced by telecom sector. Survey added that it has also deeply impacted their investors, lenders, partners and vendors. Following steps could be taken to improve the health of telecom sector

• Infrastructure Sharing: Since telecom business is heavy on capex and as much as 40%– 60% of the Capex is utilized for setting up and managing the Telecom infrastructure. By sharing infrastructure, operators can optimize their capex, and focus on providing new and innovative services to their subscribers.
• Availability of Affordable Smart Phones and Lower Tariff Rates: This would increase tele penetration in rural areas.
• Curb on predatory pricing: government should fix a minimum price to save the industry from price war
• Lower License fee: The license fee of eight per cent of the Adjusted Gross Revenue including five per cent as Universal Service Levy (USL) is one of the highest in the world.
• Reduce reserve price for spectrum auction: In the past, some of the operators participated recklessly in these auctions leading to exaggerated prices — much above their true valuations. Reasonable reserve prices for the market mechanisms induce “truthful bidding”, and not leading to “winners’ curse” as witnessed in some of the previous auctions.

Source: https://www.thehindubusinessline.com/opinion/bringing-the-spring-back-in-telecoms-step/article26378567.ece