INDIAN TELECOM INDUSTRY – ECONOMY

Indian Telecom Industry – ECONOMY

NEWS: Year end review of Indian Telecom Industry for the year 2024.

WHAT’S IN THE NEWS?

Industry Overview

  • Transformation Phase: In 2024, the Indian telecom industry entered a critical and dynamic phase of transformation characterized by intense competition, rapid innovation, and significant regulatory changes.
  • Economic and Technological Pillar: The sector remains a fundamental pillar for the nation's economic growth and technological advancement, underpinning various other industries and digital initiatives.
  • Key Trends: The industry witnessed notable trends, including a rise in Average Revenue Per User (ARPU), introduction of new government incentives, and an increasing disparity between major telecom giants and satellite communication (satcom) players.

Leadership Transition in the Ministry of Communications

  • Change of Guard: A pivotal change occurred in the Ministry of Communications leadership, with Ashwini Vaishnaw being replaced by Jyotiraditya Scindia following the re-election of the Narendra Modi government.
  • Impact of New Leadership: Scindia's appointment injected renewed optimism into the telecom sector, benefiting both private telecom operators and the state-owned Bharat Sanchar Nigam Ltd (BSNL).
  • BSNL's Recovery: Under Scindia’s leadership, BSNL began to show signs of recovery, signaling potential revitalization for the state-run entity amidst a competitive private market.

Rising Average Revenue Per User (ARPU)

  • ARPU Growth: The Indian telecom market experienced a steady increase in ARPU, a crucial indicator of the financial health and profitability of telecom companies.
  • Tariff Increases: This upward trend was driven by tariff hikes implemented by leading operators such as Reliance Jio, Bharti Airtel, and Vodafone-Idea. These companies moved away from prolonged price wars focused on gaining market share through lower tariffs.
  • Enhanced Service Bundles: Telecom operators enhanced their service offerings by bundling premium services, including 5G access, increased data allowances, and comprehensive entertainment packages, thereby adding more value for consumers.
  • Consumer Demand: There was a growing consumer appetite for superior connectivity, faster data speeds, and exclusive content, which telecom companies effectively capitalized on to justify the tariff increases.
  • Market Stability and Profitability: Despite the significant investments required for 5G deployments and infrastructure upgrades, the rise in ARPU indicated that the market was transitioning from a phase of survival to one of stable growth and profitability for operators.

Government Incentives and Policy Reforms

  • Financial Health Initiatives: The government introduced a suite of incentives aimed at enhancing the financial stability of the telecom sector.
    • Removal of Bank Guarantees: Eliminating the requirement for bank guarantees allowed telecom companies to reduce their expenditure and focus on generating liquidity for expansion and technological advancements.
    • Tax Cuts on Imports: Implementing tax reductions on equipment imports provided financial relief, enabling companies to invest more in critical infrastructure.
    • Regulatory Easing: Streamlining regulatory processes facilitated investments in key areas such as 5G networks, rural connectivity initiatives, and the expansion of fiber-optic infrastructure.

  • Focus on Rural Connectivity: Government measures were not only aimed at sustaining telecom services in urban centers but also at extending connectivity to underserved rural regions, thereby bridging the digital divide.

  • 5G Adoption and Infrastructure Growth

    • Subscriber Growth: By the end of 2024, India had amassed approximately 270 million 5G subscribers, representing about 23% of the total wireless connections in the country.
    • Rapid Rollout of 5G Base Stations: The country established around 462,852 5G base stations, accounting for roughly 57% of all telecom towers nationwide. This rapid deployment positioned India among the fastest 5G rollouts globally.
    • Increased Data Usage: With the widespread adoption of 5G, the average monthly mobile data usage per smartphone user surged to 32 GB in 2024, a threefold increase compared to 2019 levels, reflecting heightened consumer engagement and reliance on mobile data services.

    Success of the Production-Linked Incentive (PLI) Scheme

    • Sales Achievement: The PLI scheme for telecom and networking products proved to be highly successful, achieving total sales of ₹65,320 crore by November 2024. Of this, 19% was attributed to exports, highlighting India's growing footprint in the global telecom equipment market.
    • Global Manufacturing Hub: Projections for 2025 indicated that India was on track to become a global hub for telecom equipment manufacturing, with a significant increase in export contributions anticipated.
    • Satellite Spectrum Allocation: The planned allocation of satellite spectrum in 2025 was expected to open doors for innovative service offerings, such as in-flight connectivity, further diversifying the telecom services landscape.

     Challenges Facing the Telecom Industry

    • Regulatory Hurdles: Several critical issues remained unresolved, posing challenges to the sector's growth:
      • OTT Regulation: The need for clear regulations governing Over-The-Top (OTT) services was still pending, creating uncertainty for telecom operators.
      • Fair Share Contribution: Establishing fair contribution mechanisms from large traffic generators (LTGs) was yet to be addressed, impacting revenue models.
      • Spectrum Allocation: The allocation of the 6 GHz spectrum band was still in progress, delaying potential advancements in wireless communication capabilities.
      • Right of Way (RoW): Policies related to the right of way for infrastructure deployment were yet to be finalized, hindering the expansion of telecom networks.
    • Equipment Theft: Telecom equipment theft remained a significant issue for Telecom Service Providers (TSPs), leading to financial losses and increased operational costs.
    • Adaptation of Telecom Act: Although the Telecom Act had been enacted and relevant rules established, the slow adaptation and implementation by stakeholders impeded the sector's regulatory progress.

    Future Outlook

    • Global Leadership: India is poised to emerge as a global leader in telecom manufacturing and innovation, leveraging the success of the PLI scheme and the anticipated growth in exports.
    • Innovative Services: The completion of satellite spectrum allocation is expected to facilitate the introduction of innovative services, such as enhanced in-flight connectivity, further enriching the telecom service portfolio.
    • Continued 5G Expansion: Ongoing advancements in 5G technology and infrastructure will likely continue driving consumer demand and data usage, sustaining the sector's growth trajectory.
    • Policy and Regulatory Progress: Addressing existing regulatory challenges and enhancing the implementation of the Telecom Act will be crucial for maintaining momentum and ensuring the sustainable growth of the industry in the coming years.