Telecom industry: Urban strength meets rural promise in 2016

With traditional industries like auto and real estate, you ask the question: What change has technology made to your industry? With telecom, you don’t need to ask because this is the industry that makes the technology that powers other industries.

 Today, we can talk about IoT, banking for the unbanked and other projects simply because of the presence of the telecom industry. Gone are the days when you had to wait for months if not years to get a fixed line—today, you get mobile SIMs within minutes.

 This is a good industry, but not all is well with it. Encouraged by the growth that they saw—especially after CPP (Calling Party Pays)—many companies in this sector started spending big bucks for 3G and 4G. Unfortunately for them, India has remained a voice market and is defined as a high volume low ARPU (Average Revenue per User) market—the ARPU here is just $0.01 per minute.

 Since users were not making the expected shift—expected by the telecom companies, that is, not by the users themselves—freebies have started disappearing.

 But there is considerable growth potential, which is getting realized now. While a large part of India uses mobiles just for voice calls, there is a growing population that is using wireless for data. “Usage of Internet through wireless devices is increasing due to increase in demand for smartphones and tablets. As on March 2015, approximately 283.3 million subscribers accessed internet via wireless devices,” says Gaurav Sharma, executive director, advisory services, telecom, for Ernst & Young LLP.

 Much of this is happening in companies, and this is putting stress upon the CIOs who have to manage access. Says Balakrishnan V, senior vice president and head IT – enterprise, Reliance Jio Infocom, “Enterprises have challenges like restricting the access for users, providing filtered access, and also syncing data across various devices.”

Allowing service providers to perform a gate keeping function might empower TSPs to select certain content providers, thereby affecting public interest.

 While organizations have their problems, entities like TRAI (Telecom Regulatory Authority of India) have issues with them. Thanks to the growth of data, TRAI has released a consulting paper on differential pricing for data services. At the time of writing, it is still live—comments close in December and counter comments are open till January 2016. This document also looks at contentious issues like Facebook’s Internet.org, which can be deemed to be discriminatory.

 In fact, as the industry matures, this is one of the areas that is being hotly debated. Supporters claim that this will make the Internet accessible to poor people, who thus far have never seen the Internet. However, those who are for non-discrimination say that this could force people to only visit certain sites and services, keeping them away from services that are costly or paid.

 In fact, this could be the main issue before telecom providers in India in 2016. As TRAI points out:

 …differential tariffs can be used as a tool by the TSPs to incentivize or disincentive access to different contents available on the internet by varying the price of access, upward or downward. Theoretically this might entail providing certain content for free while making other content prohibitively expensive for subscribers to access. Allowing service providers to perform what effectively amounts to a gate keeping function might potentially empower TSPs to select certain content providers and disadvantage others, thereby adversely affecting public interest.  

 The Supreme Court is already involved with the judgment of the 2G case; this might also be something that the SC has to look into in the coming years, especially if TRAI fails to make data access non-discriminatory.

 But legal matters apart, 2016 may be the year of 4G. According to Sharma, 2016 is likely to register large scale 4G roll-out from some key players, with the momentum expected to build in the coming years. “The auction of 700MHz digital dividend band in the next couple of years will also boost availability of 4G services in the market,” he pointed out. Over and apart from this, the spectrum swap agreement signed between the Department of Telecom and the Ministry of Defense will bring 15MHz of additional 2100MHz spectrum into commercial use.

 Technology is fine, but ultimately, every industry is defined by revenue and profitability. And here, the figures are painful, to say the least. The Indian telecom industry is currently facing a challenging financial environment and increasing debt in the industry is a rising concern, says Sharma. “In FY14, the sector’s total debt stood at Rs 2,500 billion, which is higher than the industry’s gross revenue of Rs 2,338.5 billion. It is anticipated that the sector debt increased to Rs 3,500 billion in FY15, following the closure of spectrum auctions.” He says that financial over-leveraging, largely on account of the high costs of spectrum pay-outs, exerted a downward pressure on revenues and earning capacities in the industry.

In FY14, the sector’s total debt stood at Rs 2,500 billion and it this figure may increase to Rs 3,500 billion in FY15 following closure of spectrum auctions.

 The problem for the sector is that it is burning both ends of the candle. On the one hand, thanks to high price-related competition and low tariffs, the ARPU is low, and this limits revenues. On top of this, India’s telecom sector is subject to one of the world’s highest net outlays in the form of regulatory costs—in FY13, spectrum and license fees, two of the largest regulatory pay-outs, together amounted to Rs 171.4 billion, while for FY14 the figure rose to INR214.4 billion.

 But the industry can find solace in one thing—the immense size of India, and the vast untapped potential, especially in rural India, where the tele density is just 48.7 percent, as compared to urban India, which has a tele density of 149.7 percent. Added to this is the concept of using your mobile as a bank account in rural areas as a part of financial inclusion.

 Data and voice will always rule in India—and as long as this happens, the telecom industry will always have bright prospects.

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