By Kirti Rathi
The telecommunications sector comprises companies that make communication possible on a global scale, whether it is through the phone or the Internet. These companies created the infrastructure that allows data to be sent anywhere in the world.
The telecom sector
The major segments within the telecommunications sector are wireless communications, communications equipment, processing systems and products, long-distance carriers, domestic telecom services, foreign telecom services and diversified communication services. Evolving from the days of telegraphs to the modern technology of sharing media within seconds, the way people do business has changed drastically. At one time, telecommunications required physical wires connecting homes and businesses. In modern society, this is changing with mobile technology and wireless technology becoming the primary form of communication.
India is currently the world’s second-largest telecommunications market with a subscriber base of 1.05 billion and has registered strong growth in the past decade and a half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG).
The liberal and reformist policies of the Government of India have been instrumental, along with strong consumer demand, in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment. A fair and proactive regulatory framework that has ensured availability of telecom services to the consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.
Some of the major developments in the recent past have been:
- India telecommunication companies will be investing US$ 20 billion over the next two years for the expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman, Bharti Enterprise.
- Airtel divested 3.65 per cent stake or 67.53 million shares in Bharti Infratel Ltd to raise over Rs 2,570 crore (US$ 403.21 million) in order to reduce company debt.
- Reliance Industries Limited plans to invest an additional sum of Rs 18,000 crore (US$ 2.79 billion) during April-June 2017 in its telecom arm, Reliance Jio, to expand its fibre network, thereby raising the total amount invested in the business to more than Rs 1.9 trillion (US$ 29.50 billion).
- Bharti Airtel Ltd, India’s largest telecom operator, has decided to buy Tikona Digital Networks Pvt Ltd’s 4G business for approximately Rs 1,600 crore (US$ 248.43 million). This includes its broadband wireless access spectrum as well as 350 cellular sites in five telecom circles.
- Bharti Airtel will buy Telenor’s India operations in seven circles to receive 43.5 megahertz (MHz) spectrum in the 1800 MHz band.
- Idea Cellular Ltd, a part of the Aditya Birla Group, and Vodafone Group Plc.’s Indian unit has decided to merge in a $23-billion deal to create the world’s second largest and India’s largest telecom company.
The Jio rule
Since billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd launched services in September, offering a lifetime of free voice calls and three months of free data (later extended until end-March, then end-June), turbulence and severe competition denting financial health were seen. Although Vodafone-idea played down the Jio factor as a reason for the merger, it is clear that India’s No.2 and No.3 telcos had decided that, united, they had a chance of better competing with Ambani, India’s richest man. He has so far invested $20 billion in the network.
Cost and pricing pressures, declining profitability, mounting debt and the need to be financially flexible to face competition (read primarily Jio) are forcing telcos to merge and harness operational and financial synergies.
Effectively, the industry is likely to be left with five major telcos, assuming the mergers are completed—Vodafone-Idea, Bharti Airtel-Tikona, Jio, RCom-Aircel-Sistema and state-run Bharat Sanchar Nigam Ltd–Mahanagar Telephone Nigam Ltd.
Competition among telecoms
Meanwhile, competition is taking its toll. The telecom sector’s revenue declined by about six percent quarter-on-quarter in the last December quarter. This is the biggest decline seen by the sector historically, noted analysts from HSBC Securities and Capital Markets (India) Pvt. Ltd, in a report.
Analysts attribute the poor revenue growth for the sector in the third quarter for fiscal year ’17 to the free voice and data offered by Jio. HSBC analysts believe that the sector’s revenue will decline in fiscal year ’18, too, by about six percent as average revenue per unit (ARPUs) for the mid- to high-end of the subscriber base with incumbent telcos may get reset to significantly lower levels.
“The last one year has been especially turbulent for the industry with severe competition denting its financial health, forcing some of the players to exit or merge. The emerging oligopolistic industry structure, assuming that the pending merger plans go through, is likely to be more promising – with leaner structure, better pricing power, and steady data demand,” said Harsh Jagnani, Sector Head & Vice President, Corporate Ratings, ICRA. He further added, “However, in the short run, the operators are likely to compete intensely to garner market share. The financial position of the industry would remain subdued in the coming quarters, reflecting issues around pricing pressure, decline in Interconnect Usage Charges and elevated debt levels,”
In order to prevent such intense competition among the companies later in the future, the government decided to implement the new telecom policy in 2018 to attract $100 billion worth of investments in the sector. As part of the consultations for the National Telecom Policy-2018, the Telecom Regulatory Authority of India has set objectives. These include leapfrogging into the top-50 nations in terms of network readiness, communication systems and services. This will align with the government’s agenda of rising up the ranks in ease of doing business in the telecom sector.
Telecom Regulatory Authority of India (TRAI) had suggested that telecom systems and services should be considered as essential infrastructure for development. It also recommended a review of license and regulatory compliance costs keeping in view the global practices. Using common strategies such as the restructuring of legal, licensing and regulatory frameworks, they aim to reap the benefits of convergence in order to offer communication services at affordable prices. They also want to establish India as a global hub for internet services in a net-neutral environment while aiming for self-sufficiency in equipment manufacturing.
Among the goals set by TRAI are attaining an average speed of 20 Mbps for wireless and 50 Mbps for wireline internet connectivity, achieving full rural teledensity and enabling access for wireline broadband services in 50% of the households in the country. Enabling access for connecting ten billion ‘Internet of Things’ devices and machine-to-machine sensors are also included.
“National Telecom Policy-2018 can have twin goals viz. facilitate the development of communication infrastructure and services to achieve inclusive socio-economic growth in the country, and to propel India to become the frontrunner in the Fourth Industrial Revolution. This policy would set the mission and objectives to be accomplished by the end of the calendar year 2022 when India will be celebrating its 75 years of independence. By review of licence fee, USOF levy, and spectrum usage charge… by declaring roadmap for availability and auction of spectrum in different bands in ensuing period, by ensuring adequate availability of contiguous, broader and globally harmonised spectrum, the goals may be achieved,” the regulator said in its consultation paper issued on Wednesday.
TRAI’s paper comes when the Department of Telecommunications is close to completing its draft NTP. TRAI has asked for comments and counter-comments by January 19, which it will assemble with its inputs based on preliminary discussions with multiple stakeholders, and submit it to the government. The final policy might be set to be implemented by March. However, the TRAI-led consultation may lead to getting the initial approval steps by the Cabinet after some delay.
Featured Image Source: Pixabay
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