Telecom Industry in India

Introduction

Currently, India is the world’s second-largest telecommunications market with a subscriber base of 1.16 billion and has registered strong growth in the last decade. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP) according to a report prepared by GSM Association (GSMA) in collaboration with Boston Consulting Group (BCG). In 2019, India surpassed the US to become the second largest market in terms of number of app downloads.

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 have made the sector one of the fastest growing and the top five employment opportunity generator in the country.

Market Size

India ranks as the world’s second largest market in terms of total internet users. The number of internet subscribers in the country increased at a CAGR of 21.36% from FY16 to FY20 to reach 743.19 million in FY20. Total wireless data usage in India grew 11.01% quarterly to reach 25,369,679 TB in Q1FY21.

India is also the world’s second-largest telecommunications market. The total subscriber base in the country stood at 1,167.81 million with a tele-density of 86.23%, as of August 31, 2020.

Gross revenue of the telecom sector stood at Rs. 66,858 crore (US$ 9.09 billion) in the first quarter of FY21.

Over the next five years, rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses.

Investment/Major Development

With daily increasing subscriber base, there have been a lot of investment and development in the sector. FDI inflow into the telecom sector during April 2000 - June 2020 totalled US$ 37.27 billion according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the developments in the recent past are:

• In the first quarter of FY21, customer spending on telecom services increased 16.6% y-o-y, with over three-fourths spent on data services. This spike in consumer spending came despite of the COVID-19 disruption and lack of access of offline recharges for a few weeks
• On November 24, 2020, Google paid Rs. 33,737 (US$ 4.5 billion) for a 7.73% stake in Reliance Industries Ltd.’s (RIL) digital subsidiary—Jio Platforms Ltd.
• In September 2020, Reliance Jio partnered with 22 foreign airlines for inflight internet connectivity with plans starting at Rs. 499 (US$ 6.76) per day.
• In September 2020, Airtel and Radware partnered to offer cloud security services to businesses in India
• Airtel launched a new ad campaign, ‘Sab Kuch Try Karo, Fir Sahi Chuno’, and rolled out a new campaign 'Open to Questions', highlighting its aim to resolve every single customer query, learn quickly from failures and ensure these are not repeated.
• India had over 500 million active internet users (accessed Internet in the last one month) as of May 2020.
• In June 2020, Jio Platforms Ltd. sold 22.38% stake worth Rs 1.04 trillion (US$ 14.75 billion) to ten global investors in a span of eight weeks under separate deals, involving Facebook, Silver Lake, Vista, General Atlantic, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital and L. Catterton. This is the largest continuous fundraise by any company in the world.
• In April 2020, Vodafone Group Plc infused Rs 1,530 crore (US$ 217.05 million) in Vodafone Idea as accelerated payment to help the company manage its operations.
• As of January 2020, more than 542 banks were permitted to provide mobile banking services in India.
• In December 2019, Airtel disclosed its plans to invest US$ 2.86 billion in its business as part of company’s annual target.
• As per a report by Ericsson, India has the world’s highest data usage per smartphone at an average of 9.8 GB per month.
• As of August 2019, Jio's IoT platform was ready to be commercially available from January 2020.
• In August 2019, Reliance commercially launched Jio GigaFiber as a wired broadband service.

Government Initiatives

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 key initiatives taken by the Government are as follows:

• On November 4, 2020, The Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved to sign a Memorandum of Understanding (MoU) between the Ministry of Communication and Information Technology and the Department of Digital, Culture, Media and Sports (DCMS) of United Kingdom Government on cooperation in the field of telecommunications/information and communication technologies (ICTs).
• On September 21, 2020, Prime Minister, Mr. Narendra Modi launched a project to connect all 45,945 villages in Bihar with optical fibre internet service. This project will be completed by March 31, 2021 at a cost of Rs. ~1,000 crore (US$ 135.97 million); Rs. 640 crore (US$ 87.01 million) of capital expenditure will be funded by Department of Telecommunications.
• In March 2020, the government approved the Production Incentive Scheme (PLI) for Large- scale Electronics Manufacturing. The scheme proposes production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
• In January 2020, Government of India allowed 100% FDI in Bharti Airtel.
• The Government of India planned to roll out a new National Telecom Policy 2018 in lieu of rapid technological advancement in the sector over the past few years. The policy intended to attract investments worth US$ 100 billion in the sector by 2022.
• The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan.
• FDI cap in the telecom sector has been increased to 100% from 74%; out of 100%, 49% will be done through the automatic route and the rest will be done through the FIPB approval route.
• FDI of up to 100% is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail.
• The Government of India has introduced Digital India programme under which all the sectors such as healthcare, retail, etc will be connected through internet.

Achievements

Following are the achievements of the Government in the past four years:

• Department of Telecommunication launched ‘Tarang Sanchar’ - a web portal sharing information on mobile towers and EMF Emission Compliances.
• In October 2020, Unified Payments Interface (UPI) recorded 2.07 billion transactions worth Rs. 3.86 lakh crore (US$ 52.10 billion).
• Over 75% increase in internet coverage from 251 million users to 446 million.

Road Ahead

Revenue from the telecom equipment sector is expected to grow to US$ 26.38 billion by 2020. The number of internet subscribers in the country is expected to double by 2021 to 829 million and overall IP traffic is expected to grow four-fold at a CAGR of 30% by 2021. The Indian Government is planning to develop 100 smart city projects, and IoT will play a vital role in developing these cities. The National Digital Communications Policy 2018 envisaged attracting investment worth US$ 100 billion in the telecommunications sector by 2022. App downloads in India is expected to increase to 18.11 billion in 2018F and 37.21 billion in 2022F.

Note: Conversion rate used in November 2020, Rs 1 = US$ 0.01352

References: Media Reports and Press Releases, Cellular Operators Authority of India (COAI), Telecom Regulatory Authority of India (TRAI), Department of Telecommunication (DoT), Department for Promotion of Industry and Internal Trade (DPIIT), India Services Sector Report by Deloitte

Note: IP - Internet Protocol, TB - Terabytes

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.