Navigating the Challenges and Opportunities in India's Telecom Sector
The Indian telecommunications sector, once vibrant and fast-growing, is currently facing significant financial challenges. Despite its rapid growth over the past decade and a half, the sector is now under immense financial stress, as recognized by all stakeholders. This article explores the current state of the Indian telecom sector, its challenges, and avenues for growth and development.
Challenges Faced by the Telecom Sector
The Indian telecom sector has long been a poster child for growth, and yet it is now facing unprecedented challenges. According to stakeholders, the sector is currently under immense financial stress, with a significant demand of 92000 crore expected to dampen the sentiment of telecom operators. Raising funds for broadband network expansion and the ambitious Digital India initiative will face considerable obstacles.
Competitive Landscape and Market Dynamics
India's competitive telecom landscape has played a crucial role in shaping the current challenges. The sector's rich history includes one of the cheapest mobile tariffs even before companies became profitable. This led to fierce competition, significantly lowering profitability. Technological advancements, such as the shift from basic phones to 4G, required substantial investments, which further strained the financial health of telecom companies.
The issue of technology changes is also compounded by the high spectrum charges, which have not alleviated the financial stress on operators. Despite their dire situation, telecom companies continued extensive media blitzes, which only exacerbate their financial strain. The majority of connections are held by poor customers who spend only a fraction of what operators need to maintain their connections, leading to a low Average Revenue per User (ARPU).
Government Interventions and Market Growth
In the face of these challenges, the Indian government has stepped in to provide support and foster growth. India is currently the world's second-largest telecommunications market, with over 1.2 billion subscribers. The Indian mobile economy is expected to contribute significantly to the country's GDP, as per a report by the GSMA in collaboration with the Boston Consulting Group.
The Government of India has implemented liberal and reformist policies that have significantly contributed to the sector's growth. Measures such as enabling easy market access to telecom equipment and providing a fair, proactive regulatory framework have kept costs low and ensured access for consumers. The reform of FDI norms has made the sector grow rapidly, becoming one of the top employment generators in the country.
Market Size and Growth Metrics
With 604.21 million internet subscribers as of December 2018, India ranks as the world's second-largest internet market. In terms of total subscriber base, the country has 1183.51 million at the end of March 2019. Moreover, in 2017, India surpassed the USA to become the second-largest market for app downloads, with the country remaining the world's fastest-growing market for Google Play downloads in the second and third quarters of 2018.
The Indian telecom sector is poised for further growth, with mobile penetration expected to rise and data costs projected to decline, adding 500 million new internet users by 2023. This growth creates significant business opportunities for new players in the market.
Investments and Major Developments
Several investments and developments have shaped the sector in recent years. FDI inflows into the telecom sector from April 2000 to March 2019 totalled US $32.82 billion according to the Department for Promotion of Industry and Internal Trade (DPIIT).
Notable developments include Bharti Airtel's plans to launch 6000 new sites and 2000 km of optical fiber in Gujarat, a 5 percent monthly increase in mobile wallet transactions, and plans by BSNL to launch 5G services by 2020. Additionally, the merger of Vodafone India and Idea Cellular into Vodafone Idea, which saw Vodafone Idea becoming India's largest telecom company as of September 2018, is a testament to the significant shifts in the market.
Government Initiatives for the Future
The government has initiated several measures to fast-track reforms and provide a conducive environment for growth. These include the launch of the National Telecom Policy 2018, which aims to attract US $100 billion in investments by 2022. The Department of Information Technology has also been proactive in setting up over 1 million internet-enabled common service centres across the country.
The increase in FDI cap to 100% and the introduction of Digital India are key initiatives that will drive sector growth. Digital India, under which all sectors will be connected through the internet, has seen significant achievements, including a six-fold increase in government spending on telecommunications infrastructure and a 50% jump in FDI inflows in the telecom sector.
Future Prospects and Roadmap
The future roadmap for the Indian telecom sector looks promising. Revenues from the telecom equipment sector are expected to reach US $26.38 billion by 2020, with the number of internet subscribers expected to double by 2021 to 829 million. The overall IP traffic is anticipated to grow four-fold at a CAGR of 30% by 2021.
The Indian government has ambitious plans to develop 100 smart cities, where IoT will play a vital role. The National Digital Communications Policy 2018 aims to attract US $100 billion in investments in the sector by 2022. The Mobile Value-Added Services (MVAS) industry is also expected to grow at a CAGR of 18.3% during the forecast period 2015–2020, reaching US $23.8 billion by 2020.