The year 2022 was a game-changing one for the telecom sector, which crossed new milestones on the way. Bold reforms announced in September 2021 helped to improve the sector’s viability. The stage was set for the successful completion of 5G spectrum auctions, which fetched the exchequer over ₹1.5-lakh crore — higher than any other auction. Operators displayed a significant appetite for 5G, with 90 per cent of the total spectrum sold for 5G bands. The launch of commercial 5G services in October 2022 was a historic moment for the country.
The introduction of the draft Indian Telecommunication Bill, 2022 has been a step in the right direction. It has several positives, including the government’s power to defer/waive operators’ dues and graded penalty structure to minimize their financial burden. A more simplified system that eliminates the need for prior approval will help remove operational bottlenecks. Further, rebranding and repurposing the USO (Universal Service Obligation) fund to Telecommunication Development Fund and including R&D and new technologies under its ambiance is likely to lead to better utilization of the fund. Once the Telecom Bill is finalized by mid-2023, it will pave the way for more game-changing reforms in the future. However, broader business interest needs to be protected. Also, the ambiance to cover new technology products/services may require a tailored approach.
The satellite segment has emerged as a hotbed of activity and innovation. Considering the strategic importance, the government has come up with a slew of reforms to enhance the ease of doing business and streamline clearances. It is likely to aid the speedy rollout of satcom services across the country.
Simplified scrutiny, self-certification in place of the MPVT (Mandatory Performance Verification Testing) of satellite antennas, and online processing of applications will go a long way in minimizing the time taken for approvals. In addition, enhancing the scope of licenses to include IoT is in line with global trends, with satellites playing a complementary role to terrestrial IoT services.
In 2023, significant investment is required to ramp up 5G network rollout across the country. Operators have outlined ambitious plans for pan-India 5G coverage and are expected to invest close to $10 billion in 2023-24. A headline tariff hike is imminent to help bolster the financial health of operators as capex will be elevated in the next 1-2 years. Mobile data prices are still lower in India at $0.17 per GB as compared with the global average of $3.12 per GB. A viable cost structure is necessary for innovation to thrive and capitalize on new 5G use cases. The current mobile tariff in India is still not sustainable in the long term. More frequent tariff hikes are likely in 2023, which will bolster ARPU (average revenue per unit). India’s current mobile ARPU of $1.8 is significantly lower than the global average of $7.3. ARPU needs to be doubled in the long term for the sector’s sustainability.
5G will be a defining theme in 2023. Operators have focused on offering enhanced mobile broadband as a key value proposition to start with as they look to steadily increase 5G coverage. As has been the case globally, initial consumer 5G use cases in India focus on immersive content/gaming using a combination of AR/VR/MR. More announcements from operators on this front are likely in the later part of 2023.
It is important to identify 5G use cases that have a wider impact on people’s lives. For instance, immersive education or for that matter 5G-enabled telemedicine. India needs to ride on the 5G innovation bandwagon to capitalize on the true benefits of the technology.
On the other hand, 5G fixed wireless access (FWA) has the potential to offer a flexible and cost-effective solution to connect sparsely populated areas. The higher bandwidth available in households through 5G FWA would help to connect more devices and open-up access to a gamut of services.
This year could be that of 5G FWA in India. Enterprise-focused 5G use cases are likely to pick up from 2024 onwards, with a more mature ecosystem in place and focus on 5G standalone characteristics. It remains to be seen how private 5G networks will pan out in the country given the uncertainty around the allocation of 5G spectrum directly to enterprises.
Outlook in 2023
Given the positive growth in the sector, it is important to turbocharge the growth of the telecom engine. To begin with, a simplified version of licenses is required. Currently, all types of licenses have the same general conditions and stiff compliances. It is important to streamline the different types of licences.
A different class of license for operators who offer only B2B telecom services can be considered. Further clarity is required on the adjusted gross revenue (AGR) definition for the bundle of services with connectivity, which would become a larger reality with 5G.
Improving the financial health of the sector is important for innovation to thrive. A phased plan of action needs to be formulated to improve liquidity, create more avenues of investment, and enhance long-term sustainability. Regulatory levels on the Indian telecom sector are among the highest in the world. Approximately, 30 per cent of the revenues of telecom operators is spent on taxes and levies.
In most countries, the license fee is negligible, or a one-time upfront payment is required. The current license fee of 8 per cent (including contribution to USOF) should be rationalized to ease operators’ financial burden. Further, the accumulation of GST credits of approximately ₹32,000 crore has added to the working capital woes of the operators. Necessary measures should be taken for refunds of accumulated GST credits.
Substantial investment is required in setting up the underlying infrastructure. Subsidizing fiber deployment through viability funding gap (example, USOF) can significantly help accelerate rollout. Bandwidth sharing can be mandated, and IP-Is should be permitted to bid. In addition, greater alignment is required between States and local bodies’ Right-of-Way (RoW) policies in line with the Central RoW Rules.
A national dig-once policy can be formulated for fiber deployment across State and municipal roads and national highways. This will help bring down costs and reduce time-to-market.
Exciting times are ahead for the telecom sector. Prudent policy measures have set the ball rolling.
The writer is Emerging Markets TMT Leader, EY. Views are personal