CAA’s Articulate – The telecom sector woes


Context:

  • Some telecom players are facing an existential crisis due to brutal competition and the government demanding unpaid AGR dues. At the same time, internet companies like Facebook and Google are lining up to invest in the telecom sector.

Telecom sector in India

  • Second-largest subscriber base:
    • India has the second largest telecom network in the world.
    • Total subscriber base in the country stood at 1,183.15 million at the end of May 2019.
  • Rising penetration rate:
    • Telecom penetration, also known as tele-density, has grown rapidly over the course of the past few years.
    • Tele-density grew from 18.23 per cent in FY07 to 90.05 per cent in FY19.
  • Second-highest number of internet users:
    • India has the second highest number of internet subscribers globally.
    • India’s active internet subscription has reached 530 million in 2018 at a run rate of 65 million users per year in the last two years.
  • Affordability and lower rates:
    • Availability of affordable smartphones and lower rates of data are expected to drive growth in the Indian telecom industry.

Concerns for telecom industry:

  • Falling consumer demand:
    • The subscriber base as well, tele-density is dipping due to COVID-19 effect where mass movement of migrant labour and joblessness could have resulted in surrendered SIM cards.
    • However overall Tele-density has been increasing since 1999 when India moved away from upfront licence fee payments to a pay-as-you-go regime.
  • Poor mobile broadband reach:
    • Recent statistics show we have 656 million mobile broadband subscribers and too few — about 19 million — fixed broadband subscribers.
    • We have about 35 million fixed line subscribers, and only 19 million broadband subscribers.
    • We are moving towards work from home, long-distance education, tele-medicine and the like being dependent on connectivity, we need a reliable fixed line broadband network.
  • Flaws with Adjusted gross revenues
    • Treating Telcos as wilful defaulters:
      • The government is demanding penal interest from telecom operators which, in a way, defines them as wilful defaulters. They are not wilful defaulters.
    • Delay from both sides:
      • The government has merrily calculated interest on the basis of the number of years. The delay has been from both sides.
    • Definition of AGR:  
      • The AGR is divided into spectrum usage charges and licensing fees, pegged between 3-5 percent and 8 percent respectively.
      • As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales.
      • Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services. In any country, the licence fee is not more than 3%.
      • On October 24, 2019, the apex court had upheld DoT’s definition of AGR, and said that all telcos must pay their dues within three months, that is by January 23, 2020.
      • None of the telcos, however, paid the said dues by the stipulated deadline, in hopes of a bailout package by the DoT.
  • Monopoly in telecom:
    • Even in the U.S., in specific areas, there are only three or four operators which is fine as long as these are equipped to compete. Right now, Reliance jio is moving towards monopolising the market which is worrying for consumers.
  • High taxes:
    • The govt. is  taxing the industry in perpetuity at 33% which is not leaving the money for investment in broadband, fixed line etc.
  • Low average revenue per user (ARPU):
    • According to the ITU’s ICT price basket study, India is ranked 49th in the mobile broadband data plans. So, for about 1.5 GB per month on our average data plan, ARPU is at about $4.75 per month, adjusted for purchasing power parity. The world average, according to the GSM database, is about $8.45.
  • Improper tariffing of data:
    • Today, about 60% of the long distance calls are running on Internet or broadband connectivity. So, there has to be a tariff for voice as well. Free services by Jio hurt the industry.
  • Windfall for internet companies:
    • With 3G and 4G, we have seen Internet companies providing over-the-top services, and they have appropriated much value and relegated telcos to normal bandwidth providers.
  • Low spectrum availability for 5G:
    • India is poor in allocating spectrum. 5G is not about connectivity and high speed only; it is about creating an ecosystem. It will need a much bigger spectrum.
    • For example, in the case of healthcare, it is an ecosystem that would comprise telecom operators, healthcare providers, hospitals, governments, system integrators that provide Internet of Things and machine-to-machine communication.
  • Reserved pricing in auction:
    • The setting up of the reserve price is faulty.
    • The govt. set the reserve price based upon the winning bid price of the previous auction, which is never done in any other country.
      • It becomes very high.
  • Ban on Chinese technology:
    • 80% of 5G consumers are in China.
    • There are three 5G technologies today:
      • Huawei-ZTE, Nokia and Ericsson.
    • 5G is a bandwidth that has to be used by consumers and consumers must have devices to use that bandwidth. Industry has to choose wisely.

Emerging trends in the telecom sector:

  • Debate on using E and V bands for dense urban areas:
    • Israel has not adopted the E and V bands yet, because they say there are health hazards.
  • Debate about the mix of fibre and Wi-Fi hotspots:
    • There are consultations to use satellites to create points of presence, and distribution tributaries to users or connectivity to consumers directly like the new OneWeb satellite system.
    • OneWeb Satellites is a joint venture between Airbus, the global leader in the aerospace industry, and OneWeb, that will deploy and operate a constellation of up to 900 low-earth orbit satellites providing global high-speed internet access.
  • Investment by internet companies:
    • Today, it is Facebook, Google and other Internet firms that are putting in money. 
    • India’s 650 million mobile broadband subscriber base is a huge potential base for any Internet firm for the synergic operation of e-commerce along with digital cloud offering as well as connectivity.

Way forward

  • ARPU can go up based on the content generated or by creating a larger ecosystem. Telcos can actually tie up with businesses especially in 5G and IoT in order to have other avenues for revenue than the retail sector.
    • ARPU will have to be compensated for by additional value-added services for business consumers.
    • Interoperability between networks is a priority.
  • Revenue neutralisation, linked to inflation plus say 200 basis points can be done to reduce the taxes on the sector.
  • Tariff rebalancing, that is, how to tariff the data vis-a-vis voice.
    • Let there be studies as to how much of revenue has migrated away from the conventional switched business into the packetised or the Internet business.
    • The regulator should then look into the tariffs for both data and voice.
  • Adequate spectrum:
    • We need to have spectrum so that high bandwidth-intensive applications can be provided to end users.
  • Change in auction methodology:
    • The auctions can start with a zero reserve price instead of a reserved price.
    • Because, the simultaneous multiple-round ascending auction will extract true value from the bidders; it is an excellent mechanism.

Conclusion:

  • Future of the Telecom Sector is very bright as its role will be seen in almost everything, from networking of CCTV Cameras to the safety and security of people to providing education in remote places.
  • For the time being, the government needs to provide an easy and soothing environment for telecom operators.

E and V band

  • Airwaves in the E band, which falls between 71-76 GHz and 81-86 Ghz, and V band, between 57-64 GHz, can transmit data with speed of around 1,000 megabit per second.
  • The bands are mostly used as backhaul, which means connecting the core of a telecom network to nodes and then onto towers, to transmit data.
  • In places where telcos cannot lay fibre – which typically requires manpower for laying and maintaining, national and local level permissions besides a lot of investments – the E and V bands can be used, which is also more cost efficient when compared to fibre. It is also crucial for 5G.
  • This spectrum is also called fibre wireless or fixed spectrum, because like fibre it has the capacity to carry bandwidth since it is point-to-point, but it is not used for direct mobile connectivity.