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RSTV: THE BIG PICTURE- CHALLENGES IN TELECOM SECTOR


RSTV: THE BIG PICTURE- CHALLENGES IN TELECOM SECTOR


Introduction:

The Department of Telecommunications has asked the finance ministry to offer some GST-related relief to telcos and to bring down import duties of network equipment, but the ministry is not considering any other company specific relief measures as sought by Vodafone Idea. Speaking to reporters, telecom secretary Aruna Sundararajan said the industry needs to speak in a cohesive voice while seeking further financial relief. Sundararajan was speaking after a meeting of the Digital Commission and her comments come a day after industry body Cellular Operators Association of India (COAI) wrote to telecom minister Manoj Sinha, urging that the Rs 35,000 crore input tax credit due to telcos from the government be adjusted against spectrum payments and levies as a measure to help carriers overcome financial distress. But, the letter added, that Jio has a dissenting view on the matter. The industry had also called for a rollback of the basic customs duty increase on several telecom equipment in October 2018 and the duties imposed on printed circuit boards used in them in a bid to curb non-essential imports and address its current account deficit as well as encourage the ‘Make in India’ initiative.

 

India is currently the world’s second-largest telecommunications market with a subscriber base of 1.20 billion and has registered strong growth in the past decade and 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). As of January 2019, India has witnessed a 165 per cent growth in app downloads in the past two years.

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 and a fair and proactive regulatory framework that has ensured availability of telecom services to 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.

 

Market Size:

  • With 604.21 million internet subscribers, as of December 2018, India ranks as the world’s second largest market in terms of total internet users.
  • Further, India is also the world’s second largest telecommunications market, with total subscriber base of 1,183.51 million at the end of March 2019
  • Moreover, in 2017, India surpassed USA to become the second largest market in terms of number of app downloads. The country remained as the world’s fastest growing market for Google Play downloads in the second and third quarter of 2018.
  • Over the next five years, rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses.

 

Investment/Major development:

With daily increasing subscriber base, there have been a lot of investments and developments in the sector. FDI inflows into the telecom sector during April 2000 – March 2019 totalled to US$ 32.82 billion, according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the developments in the recent past are:

  • During the first quarter of 2018, India became the world’s fastest-growing market for mobile applications. The country remained as the world’s fastest growing market for Google Play downloads in the second and third quarter of 2018.               
  • Bharti Airtel is planning to launch 6,000 new sites and 2,000 km of optical fiber in Gujarat in 2018-19.
  • The number of mobile wallet transaction increased 5 per cent month-on-month to 325.28 million in July 2018.
  • As of June 2018, BSNL is expected to launch its 5G services by 2020.
  • Vodafone India and Idea Cellular have merged into ‘Vodafone Idea’ to become India’s largest telecom company, as of September 2018.

 

National Digital Communications Policy 2018

Objectives:

The key objectives of the policy are:

  1. Broadband for all;
  2. Creating four million additional jobs in the Digital Communications sector;
  • Enhancing the contribution of the Digital Communications sector to 8% of India’s GDP from ~ 6% in 2017;
  1. Propelling India to the Top 50 Nations in the ICT Development Index of ITU from 134 in 2017;
  2. Enhancing India’s contribution to Global Value Chains; and
  3. Ensuring Digital Sovereignty.

These objectives are to be achieved by 2022.

Features:

The policy aims to

  • Provide universal broadband connectivity at 50 Mbps to every citizen;
  • Provide 1 Gbps connectivity to all Gram Panchayats by 2020 and 10 Gbps by 2022;
  • Ensure connectivity to all uncovered areas;
  • Attract investments of USD 100 billion in the Digital Communications Sector;
  • Train one million manpower for building New Age Skill;
  • Expand IoT ecosystem to 5 billion connected devices;
  • Establish a comprehensive data protection regime for digital communications that safeguards the privacy, autonomy and choice of individuals
  • Facilitate India’s effective participation in the global digital economy;
  • Enforce accountability through appropriate institutional mechanisms to assure citizens of safe and
  • Secure digital communications infrastructure and services.

 

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 is soon going to come out with a new National Telecom Policy 2018 in lieu of rapid technological advancement in the sector over the past few years. The policy has envisaged attracting investments worth US$ 100 billion in the sector by 2022.
  • The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan.
  • FDI cap in the telecom sector has been increased to 100 per cent from 74 per cent; 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.
  • FDI of up to 100 per cent is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail.
  • 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 facing Indian telecom sector are:

  • 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
  • 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.
  • 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
  • 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.
  • Poor fixed line penetration: India has very little penetration of fixed line in its network whereas, most of the developed countries have a very high penetration of fixed lines
  • High Right-of-Way (ROW) cost: Sometimes, states governments charge a huge amount for permitting the laying of fibre etc.
  • Lack of trained personnel to operate and maintain the cellular infrastructure.
  • 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.
  • 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.
  • 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 hampers the revenue of telecommunication service provider.
  • 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.

 

Measures needed:

  • 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.
  • The government should increase the network area through optical fibre instead of copper which is expensive. This is necessary to ensure last mile connectivity.
  • The government needs to prepare a ground for easy right-of-way permissions and lower cost of right-of-ways
  • The government should spend large on R&D and create an environment that makes India capable of manufacturing and even exporting hardware components like mobile handsets, CCTV Cameras, touch screen monitors etc.

 

Conclusion:

The telecom sector in India have to deal with various challenges like maintaining the sufficient spectrum, Adoption of new technologies faster to be able to use new features and techniques to serve the customers with better and feature rich service, Government and regulatory agencies, various mobile handsets available from various companies brings lot of issues and content partners etc. Also, it is evident from the current scenario that the Voice alone will not be sufficient to generate revenue and hence the focus is required to be shifted towards various data services. 

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