Problem And Solution Of Telecom Sector in India

Economic Affairs Industrial sectors

Telecom Sector in India - The Supreme Court of India upheld the Department of Telecom (DoT)’s interpretation of “adjusted gross revenue (AGR).

Following the order, the telcos are now staring at dues of an estimated ?1.4 lakh crore, which needs to be paid to the government within three months.

Why is AGR important?

The definition of AGR has been under litigation for 14 years. While telecom companies argued that it should comprise revenue from telecom services, the DoT’s stand was that the AGR should include all revenue earned by an operator, including that from non-core telecom operations.
The AGR directly impacts the outgo from the pockets of telcos to the DoT as it is used to calculate the levies payable by operators.
Currently, telecom operators pay 8% of the AGR as license fee, while spectrum usage charges (SUC) vary between 3-5% of AGR.

Further stress in the sector

This order has added to the stress of the telecom industry is reeling under a debt of over ?4 lakh crore and has been seeking a relief package from the government.

What is the structure of the Indian telecom sector?

Current scenario of the Indian telecom sector:

India holds the distinction of being the largest consumer of mobile data globally.

Indian telecom sector’s gross revenue grew from US$ 32.05 billion in FY08 to US$ 33.97 billion in FY19.

*Tele-density is defined as the number of telephone connections for every 100 individuals.

What are the challenges for the Indian telecom sector?

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.
- It has forced the telcos towards a debt crisis.
- BSNL crisis: Distressed telecom firms Mahanagar Telephone Nigam Ltd and BSNL have been incurring losses and have been facing problems in clearing staff salaries in the recent past.

Rapidly Falling ARPU (Average Revenue Per User): The ARPU decline now is sharp and steady, which, combined with falling profits and in some cases, serious losses, is prompting the Indian telecom industry to look at consolidation as the only way to boost revenues.

Delays in the Roll Out of Innovative Products and Services:
- Substantial delays in the 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 from government policies and regulations.
Low Broadband Penetration:
- As per white paper presented on broadband at the last ITU (International Telecommunication Union), broadband penetration in India is only 7%.
Limited Spectrum Availability:
- The available spectrum is less than 40% as compared to European nations and 50% as compared to China.
- Also, the 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 costs to enter semi-rural and rural areas due to lack of basic infrastructures like power and roads.

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 fiber etc.
Lack of trained personnel to operate and maintain the cellular infrastructure.
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 providers.
License fee: The license fee of eight percent of the Adjusted Gross Revenue including five percent as Universal Service Levy (USL) is one of the highest in the world.
Substantial Investments in 4G Infrastructure: Telecom operators have already incurred huge Capex to roll out 4G infrastructure. Rolling out of 4G infrastructure is critical for higher Internet speed in India.

Govt. initiatives:

Department of Telecommunication launched ‘Tarang Sanchar’ - a web portal sharing information on mobile towers and EMF Emission Compliances.
Six-fold increase in Government spending on telecommunications infrastructure and services in the country.
Country-wide Optical Fibre Cable (OFC) coverage doubled – from 700,000 km to 1.4 million km.
The Government of India has introduced the Digital India program under which all the sectors such as healthcare, retail, etc. will be connected through the internet.

Committee of Secretaries to examine the financial stress in the sector:

A Committee of Secretaries (CoS), headed by cabinet secretary will consider steps such as

a two-year moratorium on spectrum payments – for FY20 and FY21 – to ease the cash flow situation of telcos,
reductions in the Universal Service Obligation Fund (USOF) component of the license fee, currently at 5% of AGR, and
spectrum usage charge (SUC), currently around 3% of AGR.

Best practices:

Monetizing data: Data accounts for only 35% of the revenues of Indian telcos despite the spike in volume. With an attempt to monetize this shift to a data-centric usage, operators across the globe are expanding their play in content by either partnering or investing in content ecosystems (creation, curation, distribution).
Quad play: Telcos are also evolving from pure voice providers to triple-play or quad-play players integrating their voice, data and content offerings. It has boosted the ARPU by three times.

Way forward:

Need for smart villages: Penetration of rural markets (72% of the population staying in rural areas) will be the key growth driver.

Smart cities: The Government is planning to develop 100 smart city projects, where the Internet of Things (IoT) would play a vital role.

5G: 5G will allow operators to move beyond connectivity and collaborate across sectors such as manufacturing, IoT, Machine-to-machine (M2M), and augmented and virtual reality (AR-VR), business-to-business (B2B) and business-to-government (B2G) segments.

Infrastructure Sharing: By sharing infrastructure, operators can optimize their CAPEX, reduce losses and focus on providing new and innovative services to their subscribers.

Availability of Affordable Smartphones and Lower Tariff Rates: This would increase the penetration in rural areas.

Curb on predatory pricing: the government should fix a minimum price to save the industry from a price war

Lower License fee: The license fee of eight percent of the Adjusted Gross Revenue including five percent as Universal Service Levy (USL) is one of the highest in the world.

Reduce reserve price for spectrum auction: Make more spectrum available for data usage. This can be achieved through enhancement in the spectrum limit.

Optical fiber: The government should increase the network area through optical fiber instead of copper which is expensive. This is necessary to ensure last-mile connectivity.

R&D: The government should spend large on R&D and create an environment that makes India capable of manufacturing and exporting hardware components like mobile handsets, CCTV Cameras, touch screen monitors, etc.

Conclusion:

Telcos are the only stakeholder, in an obvious path to full connectivity for the consumer. The path forward is leveraging this strength while navigating the potholes of regulation, changing technology and consumer dynamics.

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