The fag end of 2017 saw two big announcements in the telecom sector. The first was the 2G verdict by the CBI court, which acquitted all the accused and slammed the prosecution for not fighting the case properly or even presenting enough evidence. This has led to a number of players who had their 2G licenses cancelled asking for compensation.
The other big announcement was the deal between Reliance Jio and Reliance Communications. It envisages the Mukesh Ambani-led Jio buying out 122.4 MHz of RComm’s spectrum, 1.78 lakh route kms of optic fibre with a pan India footprint, 43,000 odd telecom towers and some 248 media convergence nodes for an undisclosed amount. Anil Ambani had earlier announced that the proceeds of this deal would go to repay much of RComm’s debt. It was not clear as to how much Jio was paying for the RComm assets, though speculation was that it would be in the range of Rs 24,000-25,000 crore.
While the deal seems win-win for both Jio and RComm, what does it mean for the telecom sector as a whole? We suspect it just means that the telecom war will enter its bitterest phase in 2018 between the three big players and the other two players will be completely marginalized. In 2017, we saw the consolidation of the telecom sector gathering pace with Vodafone and Idea announcing a merger (this will make them the biggest player in terms of customers and spectrum, if the current numbers of both players are taken). Meanwhile, Bharti Airtel has been adding to its own spectrum (and customers) by picking up Telenor and Tata Telecom spectrum. With the Jio-RComm deal, we have three clear players with enough spectrum, enough customers, the correct technology and enough resources to duke it out for dominance of the telecom sector.
The other two players – Aircel and BSNL – are bound to get further marginalized in this battle, because the game has now shifted exclusively to the 4G arena, and neither of these two are significant players in that game. Will we see some sort of a truce between the big three and an end to the price wars? I suspect not. Jio is showing no signs of slowing down its charge and Bharti Airtel is equally clear that it will not cede its hard earned position in the telecom field. Vodafone and Idea by combining their forces have also become so big that they can slug it out toe to toe. So brace up for more fireworks in the telecom sector in 2018. In the short run, it will also be good for consumers as data offers will get more attractive. In the long run, it will probably not be all that good because just two or three dominant players is never good for the consumer.
Good policy & big investment
The Telecom Regulatory Authority of India has sought stakeholders’ views on the New Telecom Policy (2018), which is slated to be announced by March. The consultation paper put out by the Authority has suggested that the main objectives of the NTP-2018 include: attracting an investment equivalent to $100 billion in the communication sector; achieving 900 million broadband connections at a minimum download speed of 2 Mbps; develop 10 million public Wi-Fi hotspots in the country; catapult India into the top-50 nations in terms of network readiness. “Through the present consultation paper, the Authority intends to seek views of stakeholders on the inputs for formulating National Telecom Policy 2018,” TRAI said. TRAI said the inputs have been prepared based on preliminary discussions with multiple stakeholders, including telecom operators, equipment manufacturers, industry bodies, and cloud-service providers.
Among the other objectives of the policy are increasing rural tele-density to 100 per cent, providing data connectivity of at least 1 Gbps speed to all gram panchayats, and enabling access to high-quality wireless broadband services at affordable prices to 90 per cent of the population. TRAI said NTP-2018 can have twin goals: facilitate 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’. To establish India as a global hub for data communication, systems and services, TRAI has suggested prescribing licensing and regulatory framework for cloud-service providers; declaring data privacy, protection, and security laws; prescribing policy for cross-border data transfer; enacting net-neutrality laws; and incentivising setting up of International Data Centres in India.
The Authority has requested the stakeholders to give their written comments by January 19. It has also asked for their views on any other issue related to policy framework, which stakeholders feel is important for the growth of the telecom sector, along with justification. The Department of Telecom (DoT) had in August 2017 requested TRAI to provide its policy inputs for formulation of an NTP and, accordingly, the Authority prepared inputs for formulating the policy in line with the technological advancements in the sector and customer aspirations for digital services.
Mobile data consumption in India surpassed the combined usage of the US and China in 2017, a year that saw the landscape of the telecom sector being altered with bitter competition and setting-in of the much awaited consolidation phase. With latent demand for data fuelling the digital economy, 2018 could be the growth year for the sector where investment of around Rs. 3 lakh crore is estimated to be made in next two years.
In what could be considered as a transformational year for the Indian telecom sector, 2017 saw telcos consolidate like never before, leaving just three major players in the market by the end of the year. It only proved that telecom sector has become a money guzzler where only those with deep pockets can survive. While the mighty house of Tatas gifted away their telecom business to Bharti Airtel, billionaire Mukesh Ambani’s Reliance Jio acquired spectrum, mobile-phone towers and fibre assets of his brother Anil Ambani’s Reliance Communications Ltd. On the other hand, Vodafone India and Idea decided to merge to become the country’s largest operator. Airtel bought Telenor’s ailing Indian subsidiary, Telenor India, as also Tikona Digital Network. “This year was of consolidation for the sector. Next year will be a year of growth for the sector,” Telecom Secretary Aruna Sundararajan told summing up the macro scenario of the sector for 2017 and 2018.
And what a year it has been! The Indian telecom sector, — second only to China with its massive subscriber base of 1.1 billion users — saw severe bloodletting for most part of the year as free voice calls and dirt cheap data ushered in by Reliance Jio reined in tariffs, cheering consumers. Jio propelled India to the top position in terms of mobile data consumption with 150 crore gigabytes per month, surpassing the combined 130 crore gigabytes mobile data consumption of the US and China.
The competition forced market consolidation as nervous, smaller players bailed out and biggies joined hands to cement their position. Consolidation led to fewer players and fewer jobs. “With consolidation and the poor financial health of the sector, the telcos are being forced to cut their staff strengths significantly. We expect that around a third of the four million employed directly and indirectly by the sector will be out of a job,” industry body COAI’s Director General Rajan S Mathews said. That said, once the consolidation concludes, telcos may be better placed to invest in new technologies and recruit skilled hands, boosting job prospects.
For years, Airtel has enjoyed pole position in the market, but that pecking order will change soon as Vodafone- Idea combine will have over 400 million subscribers this year. Embattled Reliance Communications (RCom) completed merger of Sistema Shyam mobile business with it but failed to proceed with the merger deal with Aircel. RCom announced the closure of voice business, and Aircel is closing services in six circles. “With consolidation, the telcos will get the benefit of synergy amongst their operations and the overall cost of operations are likely to come down, leading to increased margins,” Mathews said, adding that the pricing power of companies could return enabling longer-term sustainability.
The year 2017 saw Idea and RCom reporting their first-ever consolidated loss (for the quarter ended December 2016), and Bharti Airtel sustaining steep fall in profits. The telcos blamed Jio’s free offers for the haemorrhage. Mathews says fundamental changes would be critical for the sector. The industry, he estimates, will require an investment of Rs 3 lakh crores in coming years for innovation and infrastructure expansion. The government is finalising relief package for the sector which includes proposal to give more time to telcos to make spectrum payments. These measures are based on recommendation of an inter-ministerial committee and are expected to materialise by early 2018 along with a new National Telecom Policy — both could prove to be a lifeline for the industry. Or, at the very least, offer a breather to players saddled with loans. “The industry is still struggling with a massive cumulative debt of around Rs 4.6 lakh crore, while revenues have fallen to under Rs 1.8 lakh crore,” Mathews noted. As it is, the telecom operators are yet to recover fully from the past upheavals (remember 2009 when new entrants triggered a voice tariff war and later the spectrum auction added to the industry’s woes).
A new frontier is just about opening in the 2G case with the recent acquittals by the special court prompting some players, whose licenses were cancelled in 2012, to weigh legal options. As the financial and legal narrative unfolds in the telecom sector, some experts feel that mobile rates may actually inch up in 2018. “The telcos will move to innovative business models to counter the falling revenues. Converged services with voice telephony, wired and wireless broadband, and television services along with content, Internet of Things, financial payments, are likely to help in better revenue streams,” Deloitte Haskins and Sells LLP, Partner, Hemant Joshi said.
The year saw India leapfrogging from 135th position in broadband usage to wrest the numero uno slot as data-hungry Indians devoured newer, cheaper offers. That demand for data is likely to continue unabated next year too. While the industry gravitated towards Internet-based technology, the Telecom Regulatory Authority of India cut mobile call connection charges and announced that the rates will be made nil by 2020. The move is being seen as a step to encourage making phone calls using internet protocol.
The regulator also stood firm on its stand to keep Internet open, even as the US rolled back net neutrality regulations. Other regulatory moves including tightening call quality norms and proposal to ease spectrum caps will continue to play out in the market in 2018. Another area to watch out would access of satellite phone services for consumers especially during air travel. India’s telecom sector is also expected to make significant progress for deployment of 5G services in 2018. With Internet of Things, Artificial Intelligence, drones and robots promising to fuel future demand for high-speed data, it may just be a matter of time before the industry — with fewer players — returns to its trademark growth.