By: Rajan S Mathews, DG, COAI
India has come a long way since the days of neighbourhoods sharing a landline. Now mobile phone users have as many as four connections. There is much to celebrate. The country has crossed the billion connections mark and has some of the lowest tariffs in the world. But the sector is at an impasse and the 70th Independence year could be seen as a watershed year where the future of the sector is decided – whether it will survive or evolve from its current dilapidated state to a position of strength. The sector can also be seen as the backbone to the visionary government programs.
In the articulate and very erudite telecom secretary Ms. Aruna Sundararajan, the sector sees a lot of hope for sustenance and growth. In the minister Shri Manoj Sinha, the sector sees a visionary leader, of a responsive and sensitive government.
As India celebrates its 70th Independence Day, the country is at a cross roads – with some tough decisions to make – at least as far as the backbone of the nation’s economic growth, the telecom sector, is concerned.
Since the liberalisation of the mid-90s, when private companies were given licences and spectrum to offer wireless telephony services, India’s telecom market has exploded. We now have more than a billion connections, 40% of which are also Internet users. This has had a massive impact on the economy. According to the GSMA, a global association of GSM technology based mobile service providers, every 10% of penetration of mobile phone services led to the 1% GDP per capita rate growth. This explains the fact that up until mobile phones came along, the country had a GDP growth rate of around 1%. And after, the increased penetration, the rate has gone up to around 7%.
Now with 40% penetration of Internet services, the country is already one of the largest Internet markets in the world. And a similar impact on the economy has also been seen. A 10% 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% increase in Internet penetration increases total factor productivity in the long run by 4.2 percentage points.
But here comes the conundrum. India’s telecom companies have a cumulative debt of almost Rs4 lakh crore, while revenues have fallen to well below half of this due to increased competition, especially when it comes to data. Key operational metrics are under pressure making it difficult for them to invest in new technologies and keep the momentum going. The stalemate in regulatory policy isn’t helping. The Goods and Service Tax, while being seen as an iconic reform, raised the rate for the telcos to 18%, from 15% they were paying earlier. They already pay a major chunk of their revenues to the government as licence fees and spectrum usage charges. The industry awaits the recommendations of the Inter Ministerial Group (IMG) formed to look into the financial health, of the telcos, eagerly.
The future of the country has its hopes pinned on the Prime Minister’s marquee programmes like Digital India, Skill India and Smart Cities, which are largely dependent on the country’s telecom sector. The question then is where will the thousands of crores needed to be invested in new technologies and network roll-outs expected to come from? Even the Reserve Bank of India has expressed some amount of concern on the financial health of the sector and further, the potential impact that the banking sector would face if the telcos are not able to pay off their debt. This is not a small matter.
The last decade of telecom was marked by the introduction to wireless data. Most of the country is experiencing the Internet on their phones for the first time, rather than the wired desktop. Technologies like 3G and 4G have allowed unimaginable access to information – be it in the form of videos or literature – to those who need it. Farmers and fishermen can now access markets directly and get weather and price information almost on-demand. They can now access better equipment and eke out far better yields.
With the roll-out of 5G, this march of technology will go to the next level. Complete automation of logistics networks and warehousing, or even the ability of household appliances directly talking to vendors and ordering groceries by themselves when they sense supplies are low. Entire cities with automated security and public transport systems are just some of the possibilities. But this all comes at a cost, which would have to be borne by the telecom service provider. Many of these emergency services will require a deeper always-on network.
In most countries, the GST rate is less than 8%. Similarly, the total outgo to the government is in the region of 15%, but in India, the rate is 30%. In India, the telecom sector is the second largest revenue contributor, responsible for around 90% of the indirect tax. It can’t be easy for the government to forgo that revenue, but consideration needs to be given to the longer term returns of a healthy telecommunications sector. Telecom cannot and should not be seen as a means of only revenue generation, as was the case of the old days of the Raj, or as a means of deficit financing by the government.
On its 70th independence day, India can just about see the future, where farmers and fishermen can sell their produce directly to consumers, where entire value chains are made completely leak proof thanks to communications technology.
Where there is e-education, e-health, telemedicine, where no student is denied knowledge. The future is bright and we can collectively work towards a brave new world. But for that, after over two decades of the sector’s liberalization, the time is ripe to answer the call of history for an India @70. For bold, targeted, implementation led policy reforms and truly creating a stable, facilitative regulatory environment for the Industry which fosters innovation and investment.
The industry, on the other hand, will do its part by contributing to the Prime Minister’s vision of a fully connected and empowered India.