Telecom Sector Challenges & Way Forward

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TOPIC: General Studies 2

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation

In News: In a setback to telecom service providers, the Supreme Court allowed the Centre’s plea to recover adjusted gross revenue of about Rs 92,000 crore from them. A three-judge bench, headed by Justice Arun Mishra, upheld the definition of adjusted gross revenue formulated by the Department of Telecom. 

• In July, the Centre had told the apex court that leading private telecom firms like Bharti Airtel, Vodafone and state-owned MTNL and BSNL have pending licence fee outstanding of over Rs 92,000 crore till date. 
• Industry body COAI has expressed deep disappointment over the SC ruling and termed it the last straw in contributing to the sector’s financial distress. It added that it remains to be seen whether the industry — which is reeling under a daunting debt of about Rs 4 lakh crore and is in dire financial straits — will be able to recover from this setback. 
• The bench made it clear that there would no further litigation on the issue and it would fix a time frame for calculation and payment of dues by the telecom companies.

A Perspective behind the issue

Several impediments stand in the way of providing broadband to the masses. With a debt pileup of $119 billion and a capital expenditure line up of $17 billion for FY19-20 (excluding the spectrum spend), telcos need to find new monetization models to survive.

The telcos experienced one level of disruption in the recent upsurge in data usage. While data usage is increasing substantially and is expected to reach an average of 7GB per subscriber per month by FY20, the ongoing price war and lack of enough data monetization is also resulting in continuous decline in average data realization, which is expected to reach 12.4 paise per MB by FY20.

Telecom is the second highest revenue earner for the government, after income tax: The sector is expected to contribute as much as 90 per cent of the government’s non-tax revenue. Digital India programme is also almost completely dependent on the telecom sector. The roll-out of broadband and Internet services requires enormous investments to the tune of ₹2.5 lakh crore over the next 3-5 years for spectrum, technology, equipment and fibre-optics backbone. Therefore, the financial health of the telecom industry has to be safeguarded.

A significant change in the lives of Indians: Mobility services have brought significant changes to the lives of people. Farmers and fishermen are able to get produce to markets better and secure better prices. The sector employs as many as 4 million people, more than half of which are indirectly employed.

What are the challenges?

Gross revenue of telecom operators slipped 7.13 percent in 2018, while license fee and spectrum charges that the government collects from them fell 10.29 percent and 17.7 percent, respectively, during the year.

• High competition post-entry of Reliance Jio led other telecom players to drop in tariff rates both for voice and data.
• High Right-of-Way (ROW) cost: Sometimes, states governments charge a huge amount for permitting the laying of fiber, etc.
• Over the Top (OTT) applications such as WhatsApp, OLA and so on do not need permission or a pact with a telecommunications company. This hampers the revenue of telecommunication service providers.
• Huge fluctuations in the duties on Telecom Equipment which contribute to connecting the whole system from the central server to the consumer.
• India has very little penetration of fixed-line in its network whereas most of the developed countries have a very high penetration of fixed lines.
• Timeframe of policy execution: Government have withdrawn a lot of things to benefit telecom sector but by the time it gets executed to the market, it becomes too late.

Lot of duties creating lot of unemployment which has given birth to a lot of dissatisfaction

Solutions

Infrastructure: There should be an enhanced limit of 50 Mbps download to every citizen in the country by 2022.

• State governments should create adequate Telecom infrastructure to fulfil the NDCP mission.
• New Players/Private companies need to enter the market and start building infrastructure on shareable basis.
• In all the cities and towns, there is requirement of ‘duct construction’ for laying of optical fibres.
• India needs to have the in-house development and manufacturing capability.

Policies and Planning:

Originally, the fixed-line was operating on copper cables which is very expensive compared to optical fibre which is cheap. 

• There needs to be increased fibre penetration 
• Need to prepare ground for easy and cheap right-of-way permissions
• The download speed needs to improve and IT penetration has to increase 
• To exploit the full potential of 4G system, India needs more synergies in terms of the executions of planning in telecom sector.
• Components which are bridging the gap between the service providers and the consumers’ needs to be cost effective, consumed well and futuristic
• The policies need to be executed and aligned well at all respective levels including states and at central levels.
• Tariff needs to be increased and be put in slabs as per the requirement of different sections.
• More focus should be given to the research and development of new technologies with dependency of India decreasing in imported goods and equipment 

To be seen as an essential service and not a revenue generator: The need of the hour is for the government to see the sector as an essential service and not a revenue generator. Deloitte, in a report on the economic impact of mobile phones, estimates that for a given level of mobile penetration, a 10 per cent substitution from 2G to 3G increases GDP per capita growth by 0.15 percentage points. Similarly, doubling of data use leads to an increase in GDP per capita growth rate of 0.5 percentage points. And further, a 10 per cent increase in penetration of increases total factor productivity in the long run by 4.2percentage points.

Improved policies and regulations: There is an urgent needs for a regulatory environment which facilitates innovation and investment, and addresses the financial woes of the sector.

The Way Forward

With traditional revenue streams maturing, redesigning business models is the need of the hour. Telcos should leverage the gold mine of data that it has and move up the technology stack by providing platforms and applications to create industry-specific solution using the emerging technologies.

Given the plethora of applications that will be driven by 5G, network and service quality will be of critical importance in the networks of tomorrow. Today, India has significant grounds to cover in terms of speed, latency, and 4G coverage. Some of the critical actions would be to 

• Upgrade infrastructure, including backhaul fiberisation
• Effective placement of cell sites for maximum coverage to demand heavy areas
• Confluence of networks
• Virtualization of network architecture
• Deployment of new technologies, such as carrier aggregation, MIMO (multiple input, multiple output) etc., to raise throughput
• Adoption of AI and machine learning (ML) technologies to improve network performance

Being the only stakeholder, with an obvious path to full connectivity for the consumer, makes telcos a necessary part of any future consumer proposition, regardless of who owns the platform. The path forward is leveraging this strength while navigating the potholes of regulation, changing technology and consumer dynamics.

Note:

AGR: Telecom operators are required to pay licence fee and spectrum charges in the form of ‘revenue share’ to the Centre. The revenue amount used to calculate this revenue share is termed as the AGR. According to the DoT, the calculations should incorporate all revenues earned by a telecom company – including from non-telecom sources such as deposit interests and sale of assets. The companies, however, have been of the view that AGR should comprise the revenues generated from telecom services only and non-telecom revenues should be kept out of it.

Connecting the Dots:

1. The dismal scenario in the telecom industry is largely due to the gap between intent and execution. Examine the statement in detail.
2. Communication is critical to national security.’ In light of this statement, critically analyse the importance telecom sector in India.