Bharti Airtel chairman and managing director Sunil Bharti Mittal. Photo: AFP
Bharti Airtel chairman and managing director Sunil Bharti Mittal. Photo: AFP

India’s telecom sector, despite the successes, faces an existential crisis. The country’s story of developing into one of the fastest-growing economies is incomplete without acknowledging the rise in connectivity.

As of 2018, India had more than 500 million internet subscribers and 800 million mobile phone users.

The country has been ranked as the world’s second-largest market of internet and telecommunication users. Between voice, messaging, media and other internet services, India is well on its way to add another 500 million users over the next five years as well as increasing the number of employment and business opportunities available to its citizens.

India has set a goal for 2025 when it aims to become a US$5 trillion economy, and the telecom sector is going to play a major role in achieving that.

The year 2019 was eventful for the sector in terms of both increases in users and technological developments. With the teledensity increasing to 90.11%, the subscriber base grew like never before. This boom can be credited to the increase in internet and broadband users with each passing year.

The sector’s gross revenue grew from $32.05 billion in 2008 to an unprecedented $33.97 billion in 2019.

But the year did not go without its challenges. With newer players coming in with unbelievably low prices for data and voice calls along with starting the practice of charging users for calls to other service providers, the level playing field became wobbly.

Additionally, the unpopular AGR judgment led to Airtel owing the government $4.89 billion and Vodafone Idea having to pay dues worth $7.4 billion.

This has added to the companies’ already existing mountain of debt, with Vodafone Idea even considering leaving the Indian market altogether. Moreover, with the introduction of the Interconnect Usage Charges (IUC) and the resultant tariff hikes in the second half of the year, as well as the infamous AGR judgment, this has led to the sector facing a large debt.

But the growing market is making connections less affordable. The entire sector now has approximately 1.17 billion subscribers, with the number increasing on a daily basis. It is now almost impossible to work without the services provided by telecommunications services.

These services are a must for daily communications, conducting business, maintaining customer relationships, managing employees, google searches etc.

All financial transactions are dependent on telecommunication services, thereby leading to the sector driving economic growth. One of the primary reasons for the rapid growth rate has so far been the affordable prices of connections, which makes them more accessible to individuals living in cities, towns and villages from all economic sections.

However, in 2019 the industry witnessed tariff hikes, as all the players raised prices by up to 40% in December for the first time in three years in order to increase their revenue. In an attempt to improve the overall financial state of the telecom industry, telecom companies like Reliance Jio, Vodafone Idea and Bharti Airtel increased the price of their prepaid plans.

The hope that comes attached to this move is that the telecom operators will now be able to increase their respective average revenue per users (ARPUs). However, in reality, the hike will affect the overall data consumption and usage, which has been growing with every passing year mainly due to the dirt-cheap tariff plans and unlimited benefits.

The 5G spectrum pricing debacle

India is still debating the introduction of the 5G spectrum while countries like the United States, China and South Korea have tested and approved the network.

Despite the DoT claiming they will begin rolling out the 5G spectrum in the first half of 2020, reports suggest that Indian mobile companies are likely to push back deployments by at least five years due to exorbitant base prices, insufficient spectrum and the unavailability of newer bands.

The exorbitant prices at which the spectrum is being auctioned off is the primary reason why telcos and other stakeholders are unhappy, leading to the sector suffering commercially. Considering the large debt that the sector is facing and the cost of the spectrum internationally, the high price for 1 MHz is not a viable option.

The Telecom Regulatory Authority of India (TRAI) had earmarked spectrum in the 3,300-3,600 MHz band for 5G and recommended that the radio waves be allocated in blocks of 20 MHz.

So for a purchase of 100 Mhz of airwaves, an operator would need to pay at least US$6.9 billion. The industry is not only disappointed with the price but is also claiming that the quantum of 5G spectrum being offered in India is insufficient since the industry was seeking 100MHz per operator.

This is critical for India’s focus on enhancing infrastructural development.

The 5G spectrum is expected to form the backbone of emerging technologies such as the Internet of Things (IoT) and machine to machine communications, thereby supporting a much larger range of applications and services, including driverless vehicles, tele-surgery and real-time data analytics.

The technology can be extended to all sectors of the economy including but not limited to agriculture, health, education etc. As a fast-developing country, now in competition with the likes of China, India cannot give up the opportunity of having a leg-up over them.

A push towards a duopoly

In the light of the MTNL-BSNL merger and the latest AGR judgment coming into effect, the plausibility of a duopoly in the Indian telecom market has increased.

Telecom companies Vodafone Idea, Airtel and RCom, together, are expected to take a hit worth approximately Rs.1.4 trillion ($19.6 billion). Vodafone Idea has publicly stated that they may not survive this, which means the Indian telecom sector could turn into a dominant two-player market between Airtel and Jio.

If the company decides to exit the Indian market due to this development, high fees, frequent policy flip-flops, unhealthy competition and endless tax demands from an uncooperative government, it will not only be a huge loss to existing investments but will also discourage new investors from venturing into the country.

More importantly, this development will reduce the choices available to consumers, since they will lose the ability to select services based on personal preferences. A duopoly will also lead to a further increase in prices and reduce the quality of services – a move that will not be welcomed by consumers.

If the Indian government wants to achieve its goal of creating a $5 trillion economy by 2025, it cannot afford to alienate its current investors or create an environment where potential future investors are wary of the Indian market altogether. A duopoly will send out the message to the world that India is unwelcoming to international companies and the regulations will only lead to a fate similar to that of Vodafone Idea.

The future of India’s telecom

The Indian government must acknowledge that the collapse of one of the largest operators will be its loss by leaving millions of people jobless and inflate one of the world’s worst bad-loan piles.

Moreover, it would be facing losses worth almost $26 billion in outstanding levies. The burgeoning debt of the telecom sector is not a surprise and needs to be dealt with expeditiously and effectively. Such a financial burden can only be tempered by active policies of the government, keeping in mind a whole outlook on the nature of the sector.

NDCP-2018 recognizes the need to reduce the regulatory levies on telecoms and the recommendations suggested must be implemented. To ensure financial stability, concessions can be provided to the telcos and the overall license fee including the SUC and USOF should be reduced.

License fees should be brought down to 3% inclusive of USO levy, which is more in line with global best practice and would help utilize the existing funds.

(The authors are technology lawyers with the non-profit think tank The Dialogue)

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