By - Nishant Bansal, Senior Research Manager, Telecom, IDC Asia/Pacific
India recently joined the select list of nations that offers 5G services. Airtel launched the service in eight cities while Jio launched 5G in 4 cities, and Vodafone Idea gearing up for the launch soon. The launch of 5G has given the Indian Telecom Industry much needed optimism about its prospects and growth potential. Here are some of the growth drivers that are expected to shape the future of the Indian Telecom Industry.
Enhanced Connectivity with 5G Proliferation
5G is going to be the main catalyst of growth for the Indian Telecom Industry for the current decade. With 5G, telcos have the option of targeting enterprises with their services and solutions. 5G has use cases across multiple sectors, such as IoT-enabled smart factories in manufacturing, telemedicine, and remote surgeries via Robotics in healthcare, AR/VR in Education and many more. However, for consumers, there is not much incentive besides high internet speed. However, in a 2-3 year time frame, as the device refresh cycle progresses and 5G smartphones become affordable for a regular consumer, we will likely see significant uptake among consumers as well for 5G services.
PLI Scheme to Boost Domestic Manufacturing
The Indian government has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in the Telecom & Networking Products sector to boost domestic manufacturing, investments and export of telecom and networking products. The PLI scheme will help India become self-reliant and reduce dependence on the import of telecom and networking equipment. It will also facilitate in the creation of a local supply chain for telecom products. With the inclusion of design-led manufacturing, the PLI scheme will drive the creation of IP-driven innovations around local designs and lead to the rise and growth of a telecom components ecosystem.
Telecom Sector Reforms
In September 2021, the Indian government announced several long-pending structural and procedural reforms for the debt-ridden telecom sector. These reforms are expected to promote healthy competition, protect consumers’ interest, infuse liquidity, encourage investment, and reduce the financial stress and regulatory burden on telecom service providers. With the new Telecom bill likely in 2023, another set of reforms (Telecom reforms 2.0) is expected, which are further expected to facilitate ease of doing business for telecom companies.
Strong Subscriber Base and Data Consumption
According to TRAI, India is currently the world's 2nd largest telecommunication market, with an overall subscriber base of 1.17 billion as of July 2022, out of which 55% is the share of urban subscribers and 45% is the share of rural subscribers. As of July 2022, India's tele density of 85.11%, out of which Urban tele density is at 134.78% while rural tele density stands at 58.37%. From a data consumption point of view, the average monthly data consumption of wireless data subscribers has increased to 14GB as of June 2021 from 61.66MB in March 2014, a rise of more than 22000%. 5G is expected to further accelerate the increase in average monthly data consumption for mobile data subscribers in the coming years.
Despite the growth drivers, there are still some challenges associated with the telecom sector which are needed to be addressed to facilitate a robust, healthy, and viable telecom sector for India. Some of these challenges are:
High Cost of Upfront Investment
The spectrum cost for the 3.5 Ghz band at the recently concluded 5G auction was set at Rs 300 crores (US$41.7 million) per MHz, which was the most expensive in the world. Similarly, telecom companies need to make investments in setting up and upgrading existing infrastructure to enable 5G coverage. However, it may take at least 2-3 years before telecom companies in India can see the results of the telecom reforms.
RoW Issues
The Right of Way has been a huge issue for the telecom sector in India due to bureaucratic challenges. However, with 5G, the government has simplified RoW rules resulting in less time spent on RoW applications. This speedy approval process will help telcos set up the necessary infrastructure and roll out 5G at a much faster pace than usual.
Fiberisation
For 5G to become Pan India, India needs to be at a minimum of 70% fiberisation of its network. India is currently at 35.11% fiberisation of its network and will take at least 2-3 years to reach a stage of fiberisation where it can facilitate the 5G services to be available at a Pan India level.
Low ARPU
India has among the lowest mobile tariffs in the world. Low ARPU has meant operators are working on thin margins and are unable to invest the capital back in improving infrastructure leading to poor quality of service. In the long term, all telcos are expected to increase their ARPU, especially with the launch of 5G services, with the possibility of taking it to Rs 300 ($3.64) level in the next 2-3 years.
To conclude, the telecom sector is a critical multiplier on the economy that cuts across industries and is the foundation for all the new age connectivity and communication. According to Prime Minister Narendra Modi, Digital India's success is based on 4 pillars which include the cost of the device, digital connectivity, data costs and the digital-first approach. The Telecom sector is a common factor across all 4 pillars, and the coverage of telecom services across all the regions is integral to the growth of India as an innovative and digitally native society.
