India is currently the world’s second-largest telecommunications market with a subscriber base of 1.05 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG). The country is the fourth largest app economy in the world.
The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.
The Indian telecom sector is expected to generate four million direct and indirect jobs over the next five years according to estimates by Randstad India. The employment opportunities are expected to be created due to combination of government’s efforts to increase penetration in rural areas and the rapid increase in smartphone sales and rising internet usage.
International Data Corporation (IDC) predicts India to overtake US as the second-largest smartphone market globally by 2017 and to maintain high growth rate over the next few years as people switch to smartphones and gradually upgrade to 4G.
In the early 1990s the Indian telecom sector, which was owned and controlled by the Government, was liberalized and private sector participation was permitted through a gradual process.
- Telecom equipment manufacturing sector was completely deregulated.
- The Government then allowed private players to provide value added services such as paging services.
- The Government has been introducing its strategy on telecommunications vide various telecom policies introduced in 1994 (i.e. the NTP 1994) and in 1999 (i.e. the NTP 1999) and most recently in 2011 (i.e. the NTP 2011).
- NTP 1994 and NTP 1999 were instrumental in paving the way for private investments to be made into the telecom sector.
- NTP 2011 aims to develop a robust, secure state-of-the-art telecommunication network providing seamless coverage with a special focus on rural and remote areas and bridging digital divide
Albeit there have been significant improvements in liberalizing the telecommunications sector, the law as it currently stands still bestows an exclusive privilege on the Government to provide telecommunications services. The Government has statutory power to grant licenses to private companies in India to enable them to provide telecommunication services.
Data usage on Indian telecom operators’ networks (excluding Reliance Jio), doubled in six months to 359 petabytes or 3.7 million gigabytes per month as 4G data usage share increased to 34 per cent by the end of June 2017.$
Smartphones sales across the globe increased 6.7 per cent year-on-year to 366.2 million between April-June 2017, on the back of increased demand of 4G smartphones in India and other emerging markets.
The mobile industry is expected to create a total economic value of Rs 14 trillion (US$ 217.37 billion) by the year 2020. It would generate around 3 million direct job opportunities and 2 million indirect jobs during this period.@
The total number of telephone subscribers in the country rose by 11.13 per cent year-on-year to 1,151.78 million in the September-December quarter of 2016. According to a report by leading research firm Market Research Store, the Indian telecommunication services market will likely grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020.
The revenue of mobile handset industry rose 22 per cent to Rs 1.36 trillion (US$ 21.12 billion) in 2016. * In 2017, around 200 million mobile handsets will be made out of India out of the 270 million mobile handsets to be shipped.
According to the Ericsson Mobility Report India, smartphone subscriptions in India is expected to increase four-fold to 810 million users by 2021, while the total smartphone traffic is expected to grow seventeen-fold to 4.2 Exabytes (EB) per month by 2021.
According to a study by GSMA, smartphones are expected to account for two out of every three mobile connections globally by 2020 making India the fourth largest smartphone market. India is expected to lead in the growth of smartphone adoption globally with an estimated net addition of 350 million by year 2020.# Total number of smartphone shipments in India stood at 25.8 million units in the quarter ending December 2016, and smartphone shipments during 2016 stood at 109.1 million units, up by 5.2 per cent year-on-year. Broadband services user-base in India is expected to grow to 250 million connections by 2017.
Some of the major trends that can be seen in the telecom sector in India are as follows:
Tariffs: India has the second largest wireless network in the world. With the price of cellular handset as well as mobile (wireless) tariff reducing, there was an increasing adoption of wireless communications. Today the Indian telecom industry is already witnessing the lowest telecom tariff globally.
Broadband: Broadband services and subscribers have grown in leaps and bounds over the past years. However broadband penetration is still very low particularly in the rural areas. Broadband connectivity directly correlates with the growth of economy, as it helps improve the flow of information across various elements of the economy. It is expected that there will be a major expansion of broadband usage. Further, with the improvements in broadband capacity it is expected that various network bottlenecks would be reduced.
Unified Licensing Regime: The Indian telecom regulator (Telecom Regulatory Authority of India or TRAI) has recommended that the Government allow all communication services under one license with an entry fee; such a license shall not come bundled with spectrum and companies would have to purchase such spectrum by participating in auctions as may be declared by the Government. The TRAI believes that such a regime would not only leverage technological developments but also simplify existing procedures of licensing, ensure flexibility and efficient utilization of resources.
Value Added Services: India has one of the lowest average revenue per user (ARPU). This coupled with lower voice tariffs and the emergence of new technologies and advancements towards technology will motivate operators to shift their focus on VAS.
Manufacturing: The telecom equipment sector is completely deregulated. The Government has been trying very hard to ensure that India becomes a hub of telecom manufacturing. With its proven track record in the skill-intensive industries and the global trend to manufacture and source products in low cost countries, India is well placed to emerge as one of the leading hubs for manufactured exports.
With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth US$ 24.033 billion during the period April 2000 to June 2017, according to the data released by Department of Industrial Policy and Promotion (DIPP).
Some of the major developments in the recent past are:
- India telecommunication companies will be investing US$ 20 billion over the next two years for expansion of network and operations, stated Mr Akhil Gupta, Vice Chairman, Bharti Enterprise.
- Airtel divested 3.65 per cent stake or 67.53 million shares in Bharti Infratel Ltd to raise over Rs 2,570 crore (US$ 403.21 million) in order to reduce company debt.
- Topwise Communication, a Chinese Original Device Maker (ODM), plans to launch its own brand of ‘Comio’ smartphones in India and invest Rs 500 crore (US$ 77.6 million) for marketing, manufacturing, research and development as well as other activities, with the aim to capture 5 per cent market share within three years of operations.
- Bharti Airtel Ltd has planned to invest about Rs 2,000 crore (US$ 309.88 million) over the next three years in Project Next, its digital innovation programme, in an attempt to strengthen its position in India’s highly competitive telecommunications market.
- Reliance Industries Limited plans to invest an additional sum of Rs 18,000 crore (US$ 2.79 billion) during April-June 2017 on its telecom arm, Reliance Jio, to expand its fibre network, thereby raising the total amount invested in the business to more than Rs 1.9 trillion (US$ 29.50 billion).
- Nettle Infrastructure Investment Ltd, a wholly-owned subsidiary of Bharti Airtel, plans to acquire 21.63 per cent stake in Bharti Infratel Ltd for an estimated sum of Rs 12,400 crore (US$ 1.93 billion).
- Bharti Airtel Ltd, India’s largest telecom operator, has decided to buy Tikona Digital Networks Pvt Ltd’s 4G business for approximately Rs 1,600 crore (US$ 248.43 million), which includes its broadband wireless access spectrum as well as 350 cellular sites in five telecom circles.
- Bharti Airtel will buy Telenor’s India operations in seven circles to receive 43.5 megahertz (MHz) spectrum in the 1800 MHz band.
- Apple plans to produce iPhone SE at an upcoming facility in Bengaluru, owned by its partner Wistron.
- Ortel Communications, Odisha’s largest multi-system operator, plans to invest around Rs 300 crore (US$ 45 million) over the next two years, for upgrading its infrastructure, along with strengthening its reach, efficiency and competitiveness in the market.
- Reliance Communications Limited (RCom) has signed a binding agreement with Brookfield Infrastructure Partners to sell a 51 per cent stake in Reliance Infratel, RCom’s tower unit, for Rs 11,000 crore (US$ 1.65 billion).
- Private equity giant KKR & Co LP and pension giant Canada Pension Plan Investment Board (CPPIB) are in talks to acquire a significant stake in Bharti Infratel, which is expected at around US$ 4 billion.
The government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies. Some of the other major initiatives taken by the government are as follows:
- The Government of India is devising a plan to provide wifi facility to 550,000 villages by March 2019 for an estimated cost of Rs 3,700 crore (US$ 577.88 million), as per the Department of Telecommunications, Government of India.
- The Government of India has set up high level 5G India 2020 Forum with the primary objective of early deployment of 5G in India and a globally competitive product development and manufacturing ecosystem targeting 50 per cent of the Indian market and 10 per cent of the global market over the next 5-7 years.
- The Telecom Regulatory Authority of India (TRAI) focuses on identifying issues that make it difficult to do telecom business in India like licence acquisition and spectrum allotment among others, and review them in order to simply these processes to the maximum possible extent.
- The Government of India plans to auction the 5G spectrum in bands like 3,300 MHz and 3,400 MHz to promote initiatives like Internet of Things (IoT), machine-to-machine communications, instant high definition video transfer as well as its Smart Cities initiative.
- The Government of India has launched a phased manufacturing programme (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
- The Government of India has allocated Rs 10,000 crore (US$ 1.5 billion) for rolling out optical fibre-based broadband network across 150,000 cumulative gram panchayats (GP) and Rs 3,000 crore (US$ 450 million) for laying optical fibre cable (OFC) and procuring equipment for the Network For Spectrum (NFS) project in 2017-18.
- India will emerge as a leading player in the virtual world by having 700 million internet users of the 4.7 billion global users by 2025, as per a Microsoft report. Internet economy expected to touch Rs 10 trillion (US$ 155 billion) by 2018, contributing around 5 per cent to the country’s GDP. With the government’s favourable regulation policies and 4G services hitting the market, the Indian telecommunication sector is expected to witness fast growth in the next few years. The Government of India also plans to auction the 5G spectrum in bands like 3,300 MHz and 3,400 MHz to promote initiatives like Internet of Things (IoT), machine-to-machine communications, instant high definition video transfer as well as its Smart Cities initiative.
REGULATORY FRAMEWORK GOVERNING THE TELECOM INDUSTRY IN INDIA
The important departments that regulate the telecom industry in India are as follows:
Department of Telecommunications: As per the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933 the Central Government has the exclusive privilege of establishing, maintaining and working telegraph and wireless telegraphy equipment and has the authority to grant licenses for such activities. The Central Government acts through the DoT.
TRAI: TRAI is an autonomous statutory body established under Telecom Regulatory Authority of India Act, 1997. TRAI is the sole authority empowered to take binding decisions on the fixation of tariffs for provision of telecommunication services.
Emphasis needs to be placed on the interplay between the recommendatory powers of TRAI and the policy making powers of DoT. While the DoT is the sole authority for licensing of all telecommunications services in India, it is mandatory for the DoT to have TRAI’s recommendations, beforehand, with regard to matters over which TRAI has recommendatory powers (mentioned above). Having done so, the DoT has the discretion to either accept or reject the recommendations of TRAI.
TDSAT: The TDSAT was established in 2000 under an amendment to the Telecom Regulatory Authority of India Act, 1997 (discussed In Chapter 0 of this paper). The TDSAT has been vested with exclusive powers to adjudicate any dispute between:
- the DoT and a licensee;
- various service providers; and
- service providers and groups of customers
The jurisdiction of civil courts has been expressly barred in cases where the TDSAT has jurisdiction.
Wireless Planning Commission (WPC): The WPC was created in 1952 and is a wing of the DoT which is responsible for Frequency Spectrum Management, including licensing of wireless stations and caters to the needs of all wireless users (Government and Private) in India.
Standing Advisory Committee on Frequency Application (‘SACFA”): SACFA is a wing of the DoT which gives approval for radio frequency (spectrum) used by telecom service providers. Obtaining a telecom license is not enough for the operator to begin rolling out the services; a no objection from SACFA is required.
There are various laws and regulations that govern the telecom industry in India. Some of the important ones are as follows:
The Indian Telegraph Act, 1885: This Act is one of the oldest legislations still in effect in India and it inter alia authorizes the Government of India to grant telecom licenses on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain, work a telegraph within any part of India.
The Indian Wireless Telegraphy Act, 1933: This Act was enacted to regulate the possession of wireless telegraphy apparatus. According to this Act, the possession of wireless telegraphy apparatus by any person can only be allowed in accordance with a license issued by the telecom authority. Further, the Act also levies penalties if any wireless telegraphy apparatus is held without a valid license.
The Telecom Regulatory Authority of India Act, 1997: This Act enabled the establishment of the TRAI. Interestingly, the 1997 Act empowered the TRAI with quasi-judicial authority to adjudicate upon and settle telecom disputes. Later this Act was amended by the Telecom Regulatory Authority of India (Amendment) Act, 2000 to bring in better clarity and distinction between the regulatory and recommendatory functions of TRAI. Further, the 2000 amendment served a very important purpose in completely differentiating the judicial functions of TRAI by setting up of the TDSAT.
There are various other laws which have an impact on the telecom industry in India such as the Information Technology Act, 2000 and the rules framed thereunder which inter alia sets out rules under which an intermediary (which by definition now includes telecom service providers such as internet service providers) may be exempt for liability in relation to third party links and content. The Government also notifies various regulations from time to time which have an impact on this sector such as the Anti Spamming Regulations which prohibit unsolicited commercial communications sent via SMS and require all telemarketers to register under the said regulations.
Exchange Rate Used: INR 1 = US$ 0.015 as on October 6, 2017
References: Media Reports and Press Releases, Cellular Operators Authority of India (COAI), Telecom Regulatory Authority of India (TRAI), Department of Telecommunication (DoT), Department of Industrial Policy and Promotion (DIPP), India Services Sector Report by Deloitte
Notes: # – GSMA report ‘GSMA Intelligence Consumer Survey 2016’, * – according to a report by CMR, @ – according to a report ‘The Mobile Economy India 2016’ by GSMA, $- Nokia Mbit report ‘Mobile Broadband India Traffic’, $# – Gartner research.