Telecom Sector Changes

Context

The telecommunications sector has grown at a rapid pace with growing demand and increasing competition that has pushed down prices to levels not seen anywhere else in the world.

The sector is in trouble 

Due to the fast-paced growth in the past and regulation that increased tele-density by pushing down average revenue per user(ARPU) which lead the businesses to work with a single mind focus on consumer acquisition as the base of users increased

SC ruling on revenue-sharing agreement

 India is faced with the prospect of a telecom monopoly or duopoly. 

Background

In 1990s 

India had merely 7 million telephones with a waiting time of seven to eight years to get a connection. The reason was that the cost of installing a landline telephone was too high and the required average revenue per user (ARPU) just to break even was ₹1,250 per month, which was too high for most Indians at that time.

Indian telecom grew at a slow pace.

In 1995, 

Wireless telephony was introduced which brought down the capital cost, made telephones affordable in India, brought in private investments. 

The first telecom auctions for private players through “Licence Fee Model”

The financial bids were unbelievably high which went on to be economically unsustainable.

Several legal ploys were used to stop the payment against bids, cases multiplied

In 1999,

“Revenue Share Model” was introduced

The installation cost of wireless telephony was less than one-fourth of a landline telephone.

Low ARPU was no longer a big concern.

By 2003,

India had around 300 million telephone lines and the urban market was saturating.  

Airtel, Vodafone and Idea, with their GSM mobile-licence, were the leaders and were happy with the urban market though it was saturating.

GSM trio resisted reduction in tariffs which was the necessity if the market had to penetrate the rural areas

2003-2007

Market grew at a slow pace 

After 2007,

Government  found ways to give new GSM licences using primarily revenue-share.

Newcomers, primarily Reliance Communications (RCOM) and Tata Teleservices, dropped tariffs and introduced per-second billing. Others had to follow.

The market grew quickly to 900 million lines.

The operators were making decent money, even with lower tariffs.

India was still using only 2G telephony. Data and Internet was at very low speed; 

3G telephony was just being introduced and operators were haggling for more 3G spectrum in 900 MHz and 1800 MHz bands. 

The government was periodically conducting auctions since 2010, fetching large spectrum bids.

After 2013,

Government made available some spectrum in the 2300-2500 MHz band which was not considered suitable for 3G telephony then

4G growth 

It was in its infancy and there was some concern about technology standards and technology readiness. 

A new company, Reliance Jio, betted on it and won the whole spectrum pan-India through a partner company at a relatively lower price as there was little interest from established operators.

After 2016,

 Jio had to wait four years to get the technology ready and launched the 4G service late in 2016 and caught the imagination of users.

It made voice calls almost free and offered good quality video on smart handsets at very low tariffs.

Others did follow suit but paid higher amounts for spectrum in later auctions. 

 Jio has been gaining market share since then.

 The older operators have been on the defensive, facing serious erosion in market share and profitability.

RCOM and Tata Teleservices have been wiped out

Vodafone and Idea merged to just about survive. 

Airtel, the strongest operator two years back, continues to lose market share and profitability.

2019,

SC ruling on revenue-sharing agreement

Future steps needed from the govt 

Government needs to act, just like it did in 1999.

The government should not look at the telecom sector primarily as a revenue-earner.

They could offer the operators payment of principal in installments and waive off interest and penalties which will limit the government’s taxes and earnings from telecom

This will help bring back multiple players in telecom services.

Help India is to reap the benefit of being fully digital

The money could be better spent by operators to improve today’s average service-quality.

This would help telecom reach the remotest parts of the country and the service needs to continue to be affordable.