In recent weeks, India's telecommunications industry has been in the headlines for diverse and apparently contradictory reasons. The Economic Times reported on Ericsson of Sweden talking about futuristic 5G deployment starting in 2018 while much of the country barely has 2G and 3G service. In fact, quality of service with the current infrastructure has become a major issue and India's top government official recently challenged the industry about dropped calls, as reported in the Indian Express. Such confusion has not prevented foreign companies from investing $4 billion into Indian telecommunications in just two years.
India's telecom sector can indeed look confusing and overwhelming to the uninitiated. You may wonder about a good way to enter this enigmatic but promising market. To sift through the chaos you need to start from the undeniable and astounding growth trajectory of the telecom market in India.
It is today universally acknowledged that the telecom sector is an important constituent of social and economic progress of a country, and the growth of an emerging economy requires that its telecom network is fully developed. In India, there were only five million connections in 1991; only one out of 177 Indians had a telephone connection at the time. But by 2015, more than nine out 10 Indians had a mobile phone. This revolutionary growth path has transformed India's society.
In 1991 only one out of 177 Indians had a telephone connection... But by 2015, more than nine out 10 Indians had a mobile phone.
According to the Telecom Regulatory Authority of India, the subscriber base touched one billion by the middle of 2015. The total number of mobile subscriptions in India is expected to increase to over 1.4 billion. These projections of continuous progression and the presence of large groups of experienced human resources offer prospective opportunities for new and legacy players from all over the world.
This growth in the sector will be spearheaded by the growing affordability of handsets, dongles and services. The second generation (2G) Global System for Mobile Communication (GSM) subscriber base is estimated to be its highest in 2015 and with third generation (3G) services picking up now subscribers shall migrate from 2G.
The 3G WCDMA/HSPA subscriber base is anticipated to develop from over 120 million in 2014 to 620 million by 2020, resulting into 45% subscribers on 3G. Long-term evolution (LTE) subscriber base is anticipated to be 230 million by 2020 which will be 17% of the total subscriber base; 3G is anticipated to spread to approximately 90% coverage by the end of 2020.
Furthermore, about 45% of the population will be covered by LTE technology by 2021 according to an Ericsson projection. Nationally, public wi-fi is also catching up. Google has revealed that close to 1.5 million people already use its free wi-fi at 19 railway stations in India where the project has gone live. Google and RailTel, Indian Railway's Telecom arm, are targeting 100 stations under the free wi-fi plan by December this year. These services are being provided under "Railwire", the retail broadband distribution model of Railtel.
While the growth in number of connections looks very impressive, deeper analysis starts revealing problems:
- Operators' revenues from voice telephone calls are low and declining (presently just $3 average revenue per user or ARPU). They are looking to increase their revenues through data.
- There is coordinated activism in the public at large to prevent installation of telecom towers on residential and commercial buildings. The present standard set for EMF radiation is stricter than 90% of the countries in the world. Telecommunications spectrum has been auctioned by the government and the telcos have the high burden of recovering the fees that they have paid. So it is difficult for mobile operators to provide access at reasonable speeds at low prices that encourage adoption and usage.
- Because of their heavy debt, telcos have been unable to invest sufficient funds into improving the quality of their networks. This in turn has resulted in a high percentage of call drops which has caused serious confrontation between the telcos and the federal regulator.
Telecom manufacturing is one of the priority areas under the ambitious "Make in India" initiative of the federal government.
Notwithstanding these challenges, the three major stakeholders -- the telcos, the regulator, and the government, are working towards solving the problems of this key sector. Some of initiatives taken to clear the logjam include:
- The government has permitted the sharing of spectrum across various telcos -- this will help in utilization of unused spectrum effectively.
- TRAI (the regulator) has issued guidelines for establishing Virtual Network Operators (VNOs), who can then develop unique niche offering that ride on the existing infrastructure.
- Telecom manufacturing is one of the priority areas under the ambitious "Make in India" initiative of the federal government. This might mean that more foreign companies will leverage local manufacturing in India to accelerate their pace of growth.
- Development of a number of cities in each of the states as "Smart Cities" that include a robust communication network on which other services can ride.
The outlook on the telecom sector in India continues to be very positive and in spite of challenges there is $110 billion investment expected in this sector in the next five years. Out of this about $70 billion is greenfield investment expected in 2G, 3G, 4G, wi-fi and WiMax networks. Another $25 billion is expected in 200,000 telecom towers across the country. The remaining $20 billion will be invested in broadband rollout and transmission backbones. These investments are expected by the government as part of infrastructure growth, and the telcos, both through domestic and foreign direct investment routes.