02 Apr INDIAN TELECOM INDUSTRY
The number of telecom carriers have either reduced or consolidated because of two reasons – hypercompetition and changing nature of telecom services. Giants like Vodafone, even after mergers with Idea, are continuously signaling distress and going on the path of insolvency. In September 2021, the Government of India (GoI), stepped in by giving a four-year reprieve to these firms from paying adjusted gross revenue (AGR)-related dues.The moratorium period is expected to provide the firms time to transform and restructure to get into a revenue positive situation. A market duopoly would be less likely if the operators concentrated on restructuring and profitability.
The government also crafted a few more policy initiatives to increase the profitability of telecom firms, which were (i) allowing 100% foreign direct investment (FDI) in the telecom sector through the automatic route, which was earlier 49%; (ii) spectrum auctions in the future will be for a period of 30 years instead of the current 20 years, and that the spectrum can be surrendered after completing a 10-year lock-in period from the date of purchase; sharing of the spectrum is being promoted by removing the spectrum usage charge (SUC) of 0.5% for spectrum sharing; and (iii) the government had also offered the operators the option to convert the interest amount pertaining to the moratorium period into equity.
In January 2022, a cash-strapped Vodafone Idea chose to exercise the third policy initiative option and converted `16,000 crore in deferred spectrum and AGR into government equity. As part of the rescue package, with this deal, the government will hold 35.8% of the shares of the company till its resurgence. With this arrangement, Vodafone’s stake will fall from 44% to 28.5%, while Aditya Birla’s will fall from 27.7% to 17.8%. Tata Teleservices (Maharashtra) had also expressed its willingness to go ahead with conversion of the full amount of such interest related to the AGR dues into equity but has withdrawn from the offer after noting that the amount was much less than what it had initially calculated.
To increase the telecom penetration in rural areas, the GoI in the budget for financial year 2022–23 increased the budget of the Ministry of Communications by 137% for financial year 2022–23, totalling to `84,587 crore with a major portion of `54,150.4 crore allocated towards capital expenditure—an increase of about nine times from the previous year. This would also help the Indian telecom service firms to increase their profitability.
To keep pace with global telecom technology, 5G spectrum auctions will be held in 2022 for service launch in financial year 2022–23. In the March 2021 auctions, a total of 63% of the available spectrum remained unsold, which drew offers of nearly `77,800 crore. To build a strong ecosystem for 5G, a design-led manufacturing scheme is to be launched as a part of the Production Linked Incentive (PLI) scheme. A provision of `528 crore has been made to promote telecom and networking products manufacturing in India. Approximately, 5% of the yearly Universal Service Obligation Fund (USOF) receipts have been allocated to encourage research and development, commercialisation, and technology proliferation in rural India. The 5% of the USOF layout may help indigenous, niche businesses developing technologies such as the Open Radio Access Network (O-RAN), private networks, and tiny cells.
It is hoped that the supportive policies of the government will suit the telecom sector and help the Indian telecom come out of its constrained margins. The government needs to focus more on ecosystem development, which includes digitalising the health infrastructure, commissioning smart cities, giving hardware manufacturing PLIs advantage, and providing digital education and access. Ecosystem investment coupled with service and manufacturing industry adsorptive capacity, positive demography increasing consumption will boost the adaptability of 5G and make it a good feasible investment.
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