March , 2017
Telecom industry in for a major consolidation
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Ayantika Halder

India is currently ranked as the world’s second-largest telecommunications market and has the third highest number of internet users. India’s telephone subscriber base expanded at a Compound Annual Growth Rate (CAGR) of 19.96%, reaching 1058.86 million during FY07–16. In March 2016, total telephone subscriptions in India stood at 1,058.86 million while tele-density was at 83.36%. The industry has attracted Foreign Direct Investment (FDI) worth $18.38 billion from April 2000 to March 2016, according to the data released by Department of Industrial Policy and Promotion (DIPP).

According to the estimates by Randstad India, the telecom industry is expected to generate four million direct and indirect jobs in the next five years. International Data Corporation (IDC) predicts India to overtake the US as the second-largest smartphone market globally by 2017 and to maintain high growth rate over the next few years. India is expected to have over 180 million smartphones by 2019, contributing around 13.5% to the global smartphone market, based on rising affordability and better availability of data services. According to a report by leading research firm, Market Research Store, the Indian telecommunication services market will likely grow by 10.3% year-on-year to reach $103.9 billion by 2020. According to the Ericsson Mobility Report India, smartphone subscriptions in India is expected to increase four-fold to 810 million users by 2021, while the total smartphone traffic is expected to grow seventeen-fold to 4.2 Exabytes (EB) per month by 2021.

The total number of Fourth-Generation (4G) enabled smartphone shipments in India stood at 13.9 million units in the quarter ending December 2015, which was more than 50%  of total shipments,  surpassing number of Third-Generation (3G) enabled smartphone shipments for the first time. Broadband services user-base in India is expected to grow to 250 million connections by 2017.

2017 Budget Provisions

Government has slashed revenue expectation from the telecom sector by 55% to `44,342.2 crore for 2017-18, which includes “licence fees from Telecom Services Providers” and “one time entry fees from new operators”. The Telecommunication department had placed for auction airwaves worth `5.66 lakh crore in October 2016, which fetched total bids worth about just `65,789 crore. The Finance Minister announced that the recent spectrum auctions have removed spectrum scarcity in the country. This will give a major fillip to mobile broadband operations and the Digital India dream. Telecom sector fetched revenue of `78,715.01 crore. It received around `32,400 crore as partial payment from successful bidders in spectrum auction and rest from non-tax charges. “The Government may not be looking at further auctions in next fiscal. With consolidation happening in the market there seems no need for incremental spectrum, though the government will get amount that is due for earlier auctions,” EY Global Telecommunications leader Prashant Singhal told PTI.

Spectrum auctions of 2017 have helped the telecom industry move to a situation of spectrum surplus from a condition spectrum scarcity. India sold the largest amount of spectrum last November, raising `65,789.12 crore with Vodafone India and Bharti AirtelBSE -1.19 % emerged as the biggest buyers of 4G airwaves, followed by newcomer Reliance Jio Infocomm and Idea Cellular BSE -2.14 %. Despite all mobile phone operators giving the expensive 700 MHz band considered the best for 4G services a miss, the government sold 964.8 MHz of spectrum.

How can the sector curb the existing loopholes?

Spectrum scarcity and the consequent high prices have been a nightmare for the operators. India is predominantly a wireless economy with fixed wireline penetration and hence rollout, adoption and benefits of broadband will be primarily driven through mobile broadband. New solutions such as M2M, m-governance, m-banking and m-entertainment will lead to voluminous traffic/data on the wireless networks. To address and cater to this, identification and allocation of new spectrum bands with clear future plans for availability of spectrum are crucial.

Given the huge expected growth in wireless broadband adoption and the government’s thrust towards ‘Digital India’, operators are bracing themselves and are committing to build up next-generation network infrastructure. The National Telecom Policy (NTP) 2012 also aims to provide ‘Broadband on Demand’ with a vision to strengthen e-governance and mobile governance in key social sectors such as health, education and agriculture. The ‘app economy’ and the new generation start-up eco system are expected to give a boost to the growth of content and applications provisioning in the country.

In the erstwhile voice market, the 10-12 operators in each service area operated in a competitive market place with an un-differentiated product. The firms were price takers, thus beneficial to the customers. However, unlike in the voice market, in wireless broadband, telcoms can offer differentiated products and services and price them smartly including congestion pricing and content based pricing methods. Events such as the Mobile India 2015 Conference on January 9 brought together a range of experts to address these policy and infrastructure issues. With Unified Licence in place, there are opportunities for competitive access providers such as cable operators and pure-play Internet Service Providers (ISPs) to offer wired broadband as well.

The Indian telecom sector contributes 3% to the country’s GDP.  Though urban areas might be well penetrated, as far as telecom services are concerned, rural penetration at around 50% leaves plenty of room for growth. While urban areas move to newer technologies, rural areas have twin opportunities to catch up and leapfrog almost simultaneously.

Competition to the network operators is also coming from other quarters such as Over-The-Top (OTT) players who provide substitutable services such as internet telephony and internet messaging services. As a result, the industry needs to work closely with the government, international bodies, Over-the-Top service providers (like Google, Facebook) and civil society in promoting security while also ensuring the legitimate rights of consumers for privacy. There is a need to have balanced and rational security policies that protect the stakeholders.

Though the sector has been awarded ‘infrastructure status’, there is a need to implement the benefits of the status for the industry in parity with other infrastructure sectors in the country. This can be done in the form of tax holidays, reduced interest on debt, sourcing of funds from special funding agencies and priority availability of grid power.

Government initiatives


The Ministry of Communications & Information Technology has launched Twitter Sewa, an online communications platform for registration and resolution of user complaints in the telecommunications and postal sectors. The Telecom Regulatory Authority of India (TRAI) has released a consultation paper which aims to offer consumers free internet services within the net neutrality framework and has proposed three models for free data delivery to customers without violating regulations. The Government of India has liberalised the payment terms for spectrum auctions by allowing two options of payments to telecom companies for acquiring the right to use spectrum, which include upfront payment and payment in installments. The Telecom Regulatory Authority of India (TRAI) has recommended a Public-Private Partnership (PPP) model for Bharat Net, the central government’s ambitious project to set up a broadband network in rural India, and has also envisaged central and state governments to become the main clients in this project.With the government’s favourable regulation policies and 4G services hitting the
market, the Indian telecommunication sector is expected to witness fast growth in the next few  years.

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