Data Is A Big Challenge For Telecom Operators Of India Industry Heading Towards New Opportunity

In one telling of the history of India’s telecom revolution, former Prime Minister Rajiv Gandhi and Sam Pitroda laid its foundations back in the 1980s. True or not—it has been argued that the revolution’s true progenitor was the Atal Bihari Vajpayee administration with its 1999 National Telecom Policy—Gandhi’s tragic assassination meant that he would never see its fruition.

In October 2015, India hit the billion mark for its mobile phone subscriber base, according to Telecom Regulatory Authority of India (TRAI) data. It’s a telling comparison—and the manner in which it maps to India’s economic growth post-liberalization in 1991 is not a coincidence. But the world has moved on. Data matters now, and India has a distance to go here. According to TRAI data, the total number of broadband subscribers in the country at the end of October 2016 was 218.42 million. Of this, access through mobile devices or dongles accounted for nearly 200 million. At the same time, almost 75% of telecom companies’ revenue comes from voice. This highlights two trends that have been apparent for some time now. One, India’s evolution to a digital economy will depend on smartphone penetration, not fixed line. And two, given the revenue models of telcos, it will not be an easy transition.

The latest figures following Reliance Jio’s September 2016 launch show just how painful it could be. By the beginning of this year, Reliance Jio had signed up 72 million subscribers. The telecom pie in India is so large that subscriber base growth for rival telecoms hasn’t been hit too hard yet by that rapid growth. Besides, how many of the subscribers stick around once the free service period is over remains to be seen. But the financial strain is another matter entirely. The big three—Airtel, Vodafone and Idea Cellular—have deep-enough war chests to absorb the pain for now. Smaller companies are not as fortunate. Consolidation or exits are inevitable; witness Reliance Communications’ merger with Aircel.

What does this mean? For the consumer and the digital ecosystem, nothing bad—quite the reverse, at least in the short run. Telcos have little choice now but to upgrade the quality of their networks, still a weak point. And cheaper data means growth potential for the online content industry. It also means that a change in the growth direction of the smartphone industry is in the offing. Currently, less than 10% of the Indian subscriber base has 4G-enabled handsets. Demand will inevitably spike here as data prices plummet and penetration grows. That represents a manufacturing opportunity that dovetails neatly with the Make in India initiative. But that comes with its own set of challenges. Domestic manufacturers like Micromax must contend with Chinese companies that have already had a chance to hone their 4G game in the Chinese market. Given the recent surge by the latter and their rapidly growing market share, that will not be easy.

Latest investment

With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth US$ 23.92 billion during the period April 2000 to December 2016, according to the data released by Department of Industrial Policy and Promotion (DIPP).

Some of the major developments in the recent past are:

  • Bharti Airtel will buy Telenor’s India operations in seven circles to receive 43.5 megahertz (MHz) spectrum in the 1800 MHz band.
  • Apple plans to produce iPhone SE at an upcoming facility in Bengaluru, owned by its partner Wistron.
  • Ortel Communications, Odisha’s largest multi-system operator, plans to invest around Rs 300 crore (US$ 45 million) over the next two years, for upgrading its infrastructure, along with strengthening its reach, efficiency and competitiveness in the market.
  • Reliance Communications Limited (RCom) has signed a binding agreement with Brookfield Infrastructure Partners to sell a 51 per cent stake in Reliance Infratel, RCom’s tower unit, for Rs 11,000 crore (US$ 1.65 billion).
  • Private equity giant KKR & Co LP and pension giant Canada Pension Plan Investment Board (CPPIB) are in talks to acquire a significant stake in Bharti Infratel, which is expected at around US$ 4 billion.
  • Chinese smartphone manufacturers, Oppo and Vivo, have both planned to invest in setting up large scale manufacturing capacity in the state of Uttar Pradesh in India, with an aggregate investment size of Rs 4,000 crore (US$ 600 million).
  • Samsung India has expanded its service network to over 6,000 talukas across 29 states and seven union territories in India, by introducing over 535 service vans equipped with engineers, key components, diesel generator (DG) sets and key equipment, for providing quick response and on-spot resolution.
  • LeEco, a Chinese technology company, has entered into a partnership with Compal Technologies and invested US$ 7 million to set up manufacturing facility at Greater Noida in order to start manufacturing Le2 smartphones in India.
  • Chinese telecom gear maker Huawei has set up its largest global service centre (GSC) at Bengaluru in India, with an initial investment of Rs 136 crore (US$ 20.4 million), which will extend its support to Huawei’s domestic and international telecom carrier customers in about 30 markets across Asia, Middle East and Africa.
  • Chinese smartphone maker Gionee, which currently assembles smartphones in partnerships with contract manufacturers Foxconn and Dixon, plans to invest Rs 500 crore (US$ 75 million) to set up a manufacturing facility in India.
  • Singapore Telecommunications Limited (Singtel), the major shareholder in Bharti Airtel, announced that it has signed an agreement with its majority owner Temasek Holdings Private Limited to purchase a 7.39 per cent stake in Bharti Telecom Limited, the parent company of Bharti Airtel Limited, in a deal worth US$ 659.51 million.
  • Axiata Digital, a subsidiary of Malaysia’s largest telecom firm Axiata Group Berhad, has made its entry into Indian e-commerce market by investing Rs 100 crores (US$ 15 million) in Bengaluru-based StoreKing.
  • Chinese smartphone manufacturer OnePlus has partnered with Foxconn to start manufacturing its products in India as part of its plan to have 90 per cent of the devices sold in India to be locally manufactured by the end of 2017.
  • Government of India to make a windfall gain from sale of spectrum in 2016-17 and achieve its fiscal deficit target of 3.5 per cent of GDP for the year.
  • Vodacom SA, a subsidiary of Vodafone Plc, has entered into an agreement with Tata Communications Ltd to buy the fixed-line assets of TataComm’s South African telecom subsidiary Neotel Pty Ltd.
  • Reliance Communications Ltd, India’s fourth largest mobile services provider, has agreed to acquire Sistema Shyam TeleServices Ltd (SSTL), the local unit of Russian company Sistema JSFC, in a deal valued at Rs 4,500 crore (US$ 675 million), which includes payments to the government for spectrum allotted to Sistema.
  • American Tower Corporation, a New York Stock Exchange-listed mobile infrastructure firm, has acquired 51 per cent stake in telecom tower company Viom Networks in a deal worth Rs 7,635 crore (US$ 1.14 billion).
  • Swedish telecom equipment maker Ericsson has announced the introduction of a new radio system in the Indian market, which will provide the necessary infrastructure required by mobile companies in order to provide Fifth-Generation (5G) services in future.

Government Initiatives

The government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies. Some of the other major initiatives taken by the government are as follows:

  • The Government of India has allocated Rs 10,000 crore (US$ 1.5 billion) for rolling out optical fiber-based broadband network across 150,000 cumulative gram panchayats (GP) and Rs 3,000 crore (US$ 450 million) for laying optical fiber cable (OFC) and procuring equipment for the Network For Spectrum (NFS) project in 2017-18.
  • 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 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 the 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 instalments.
  • The Department of Telecommunications (DoT) has amended the Unified Licence for telecom operations which will allow sharing of active telecom infrastructure like antenna, feeder cable and transmission systems between operators, thereby lowering the costs of operations and leading to faster rollout of networks.
  • The TRAI has recommended a Public-Private Partnership (PPP) model for BharatNet, 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.
  • The Ministry of Skill Development and Entrepreneurship (MSDE) signed a Memorandum of Understanding (MoU) with DoT to develop and implement National Action Plan for Skill Development in Telecom Sector, with an objective of fulfilling skilled manpower requirement and providing employment and entrepreneurship opportunities in the sector.
  • The TRAI has directed the telecom companies or mobile operators to compensate the consumers in the event of dropped calls with a view to reduce the increasing number of dropped calls.

New business opportunities for telcos

Telecom companies, under pressure from low tariffs and slow growth of infrastructure, can turn to new business opportunities to spur growth, according to a Deloitte India report. Titled “Technology, Media and Telecommunications Predictions 2017”, the report identifies major growth opportunities in Internet of Things, Software as a Service and biometric verification, among others. “With growth in data and more people on the same networks, there is need for a bigger (data) highway,” Hemant Joshi of Deloitte said. “With such competitive pricing, from where is the money going to come? It will come from new applications and new technologies,” he added.

The report predicts that India will soon be a global hub for Internet of Things (IoT) solutions, spurred by government efforts under the Smart City and Digital India initiatives. Deloitte says the market will be valued at $9 billion with 1.9 billion connected units installed by 2020. “IoT devices are proliferating and are being used currently in sectors such as logistics”, Joshi said. “Telcos, which provide the heart of IoT, will need to be competitive and provide both low and high spectrum connectivity.” Commercial IoT devices that transmit short amounts of data over a long period of time typically need lesser spectrum to communicate even as they preserve battery life. The report predicts that operators will start experimenting with modems suited to such IoT devices.

Road Ahead

India will emerge as a leading player in the virtual world by having 700 million internet users of the 4.7 billion global users by 2025, as per a Microsoft report. With the government’s favorable regulation policies and 4G services hitting the market, the Indian telecommunication sector is expected to witness fast growth in the next few years. The Government of India also plans to auction the 5G spectrum in bands like 3,300 MHz and 3,400 MHz to promote initiatives like Internet of Things (IoT), machine-to-machine communications, instant high definition video transfer as well as its Smart Cities initiative.

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