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High Expectations: Industry looks forward to policy support to revive businesses

January 31, 2012
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The past year witnessed several significant developments in the Indian telecom sector, including the launch of 3G services, framing of the draft National Telecom Policy (NTP) and the regulator taking steps to curb unsolicited calls and text messages. However, the investor perspective on the Indian telecom sector was impacted significantly, especially in view of the 2G spectrum issue. Going forward, there are high expectations from the NTP and the National Broadband Plan. Industry stakeholders believe that policymakers are headed in the right direction to build a consensus on structural policy and regulatory frameworks that govern the industry. tele.net spoke to the leading telecom associations about the sector’s achievements in the past year, the major failures and their expectations in 2012…

 Ashok-Aggarwal-TEMARajesh-Chharia-Newpi14040NK-Goyal-CMAIRajan-Mathews-DG-COAI

What are your views on the telecom industry’s performance over the past year?

Ashok Aggarwal

The telecom industry can be segregated into two distinct parts: the service sector and the manufacturing sector. As far as the service sector is concerned, it has witnessed unprecedented growth over the past one year with the total subscriber base standing at 917 million subscribers as of November 2011. Of this, wireless subscribers account for 884 million or 96 per cent. Although urban teledensity has increased to over 160 per cent, rural teledensity still languishes at 37 per cent. The urban-rural digital divide has, thus, increased further.

However, the performance of the equipment manufacturing sector has been dismal. Out of the total telecom equipment demand of about Rs 560 billion in 2009-10, the contribution of the domestic manufacturing sector was merely 2-3 per cent, at about Rs 14 billion. The country imported telecom equipment worth over Rs 400 billion during this period. This situation calls for some corrective steps.

Rajesh Chharia

While the overall performance was good, a few concerns remain. For example, owing to the current issues, foreign and domestic companies have not made large investments in the sector.

The new NTP is expected to encourage investments in the sector. The government should provide policy support to service providers.

The National Optic Fibre Network (NOFN) is expected to bring about a sea change in the broadband space, especially in rural areas.

N.K. Goyal

The telecom industry’s performance has been positive with significant growth in the number of subscribers. However, operator revenues have been under pressure. The government has taken several policy and regulatory measures to address these issues.

Rajan S. Mathews

The Indian mobile market’s revenues grew by 5.5 per cent to reach Rs 1.02 trillion in 2010-11 from Rs 968.6 billion in 2009-10. Also, data connectivity witnessed significant growth in 2011. The broadband subscriber base stood at 12.98 million at end-October 2011. Significant progress was made in terms of rural penetration, in both the mobile and broadband segments. As per our projections, India’s wireless subscriber base will cross 900 million in 2012 and 1,200 million by 2015.

In terms of investments, there was an improvement in foreign direct investment (FDI) inflow, which increased to about $2.37 billion in 2011 from $1.67 billion in 2010. However, with attractive merger and acquisition norms being formulated by the Department of Telecommunications (DoT) as well as the Telecom Regulatory Authority of India (TRAI) and provisions being made in the NTP to encourage fund flow, we are expecting higher investments in the near future.

What were the key achievements of the sector in 2011? What was the biggest disappointment for the industry?

Ashok Aggarwal

The noteworthy achievement for the telecom sector during 2011 was the remarkable growth in the subscriber base, with an average monthly addition of about 12 million users. The biggest disappointment has been the insignificant contribution of domestic manufacturing to the growth of the service sector. This sector has remained neglected despite the government and the prime minister expressing concern over it.

Rajesh Chharia

DoT’s NOFN project will help internet service providers improve broadband penetration in rural areas. In this context, the government should not differentiate between service providers while awarding projects for these areas. Also, a bidding-based process should not be adopted. Such a mechanism could lead to a situation where the government awards the contract, but little progress actually takes place.

N.K. Goyal

The overall atmosphere has not been encouraging for the telecom sector. Various situations and issues have been blown out of proportions. Moreover, alleged corruption and lack of a concrete policy have impacted telecom project financing and overseas investor interest in the sector. In this context, even Indian banks are cautious about providing financial assistance to telecom players.

Interestingly, policy-related decisions taken 10-15 years ago are being challenged today. The sector has also seen the imposition of heavy penalties and fines.

The basic challenge is that courts have ruled against the fines for some companies, but the image of these entities has been impacted.

Also, if a few cases do not stand judicial scrutiny in the future, it would be difficult to restore the entity’s lost image.

A major disappointment has been the lack of growth of the domestic telecom equipment manufacturing business. There are concerns that the telecom sector’s import bill may exceed that of the oil industry. It is difficult to believe that India is the second largest market in the world with 817 million users and we do not have local manufacturing facilities.

While different industry stakeholders have highlighted this point, concrete steps are yet to be taken. Several announced policy measures such as those for preferential market access, a cluster policy, the NTP and the National IT Policy are awaiting final clearance. This is the case with rural telecom and broadband penetration as well.

Rajan S. Mathews

The sector’s achievements were the launch of 3G and mobile number portability (MNP)  services. While MNP has not exactly been a game changer with the less-than-expected 23.1 million porting requests as of end-October 2011, it has definitely offered customers the freedom of choice in selecting operators.

The launch of 3G services was another milestone for the Indian telecom sector. While the technology still has a long way to go in the country, there has been a definite improvement in the quality of services made available in India. In about a year’s time, we will see improved availability as well as greater uptake of these services in the country.

Moreover, the release of the draft NTP was a major step as it is aimed at providing a supportive policy framework for sector development.

An area of concern and immediate attention, however, is stagnating revenues and increasing operating costs. Despite a drop in tariffs, minutes of usage (MoU) have decreased by over 25 per cent in less than two years. As a result, the ARPU levels have almost halved during the same time frame. Other factors contributing to falling ARPU levels are urban market saturation, use of multiple SIMs and subscriber churn.

What are the key issues hindering the growth of the sector growth?

Ashok Aggarwal

The key issues are the lack of a proper policy framework to encourage and support research and development (R&D), and the need to create intellectual property rights (IPRs) and encourage domestic manufacturing. The problem is compounded by the fiscal distortion facing the domestic manufacturing industry vis-à-vis foreign manufacturers who import equipment directly into the country and supply it to the operators.

Rajesh Chharia

The government should encourage internet service providers to increase broadband penetration in rural India. So far, this has depended on large telecom operators. About 5 per cent of internet service providers (including the large operators) are serving 95 per cent of consumers in metros and cities, while 95 per cent of internet service providers are serving 5 per cent of the subscriber base in towns and rural areas.

Rajan S. Mathews

Several issues are impacting the sector’s performance. An overly regulated industry with no infrastructure status, unreasonably high taxation, the lack of a level playing field, scarcity of resources, decreasing profit margins, etc. have been the major roadblocks for the sector.

In this context, the industry has high expectations from the NTP. The final policy is expected to strike a balance between the well-being of the industry and users as has been indicated by the draft.

What are your expectations from the sector in the coming year?

Ashok Aggarwal

To begin with, the telecom manufacturing sector needs to be considered as a separate sector from the overall telecom space. With the right support and a conducive policy framework, domestic R&D and equipment manufacturing are expected to stand independently and be able to compete globally with products of international standards and competitive prices. This will meet most of the domestic needs, besides making India a hub for telecom equipment supply around the world, much like what China is today.

Rajesh Chharia

The country’s broadband penetration is likely to increase in the future, especially in rural areas. Also, broadband-based services should be available in regional languages for rural users.

N.K. Goyal

We hope that the industry’s long-standing issues are resolved in the near future, which will facilitate its resurgence.

Rajan S. Mathews

The Indian telecom industry has marked major achievements over the last decade. Progressive policies as well as a supportive regulatory environment are needed for the sector, which is also emerging as one of the most technically advanced industries globally.

We expect 3G to gain momentum with improving infrastructure and operational environment as well as supportive policies. The scarcity of spectrum/bandwidth for such services is also an area of concern. R&D and technology-intensive initiatives and practices will be required to address these issues.

What are the expectations on the policy front?

Ashok Aggarwal

Although the NTP 1994 and NTP 1999 had highlighted the government’s concern for the telecom manufacturing sector, the lack of a concrete follow-up had resulted in a virtual neglect of the sector,

However, the content of the draft NTP 2011 reflects the government’s sincere intent of giving the telecom manufacturing sector the much-delayed and much-needed thrust. The draft policy document suggests promoting indigenous R&D, innovation, IPR creation, manufacturing that serves both the domestic and foreign markets by addressing market distortions, preferential market access, etc.

Our expectations from the policy, besides the presumption that the contents of the draft policy are upheld in the final policy document, are:

•   Implementation of preferential market access for Indian products on a priority basis with a 100 per cent mandate for government-funded/aided projects, bilateral aids and expansion of telecom services to rural areas using the Universal Service Obligation Fund

•   Levying of R&D cess on licensed service providers

•   Revival of the Telecom Engineering Centre (TEC), by making it mandatory for all operators to follow the technical specifications and general requirements laid down by the TEC for each of the subsystems, and also obtaining approval certificates for any equipment (imported or indigenous) that is to be inducted into the Indian telecom network

• An action plan with a suitable monitoring mechanism to ensure that all milestones linked with policy expectations are achieved in a timely manner. The government’s will is the key to make this happen, which unfortunately has been lacking till date.

Rajesh Chharia

We expect a favourable unified licencing regime, under which an internet service provider can avail of an adequate and reasonable migration path to obtain a unified licence. Also, we expect the unified licence fee on broadband to be eliminated, as any upward cost revision on account of taxes or the adjusted gross revenue will discourage the progress this service makes.

Rajan S. Mathews

Release of the draft NTP was a positive step as the industry needs new policies to increase its productivity. The new policy acknowledges the need to develop the mobile telecom industry. The key initiatives that will ensure the policy achieves its stated objectives in a timely manner are:

•   The availability of internationally harmonised spectrum at rational prices

•   Reduction in taxes, fees and levies, which are globally among the highest

•   A stable and predictable regulatory and policy regime, which allows operators to raise funds and plan operations in a sustainable manner

•   A licence renewal plan, that provides reasonable rates of return on capital

•   A competitive framework that balances affordability to the consumer with the industry’s financial health

•   A workable plan that ushers in the world of convergence around broadband.

COAI is hopeful that the NTP  will provide a level playing field for all stakeholders by increasing the affordability of services while taking care of the sector’s financial health.

 
 
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