By – Nishant Bansal, Senior Research Manager, Telecom, IDC Asia/Pacific
India has recently joined the select list of countries offering 5G services. Airtel launched the service in eight cities, while Jio launched 5G in 4 cities, and Vodafone Idea is gearing up for the launch soon. The launch of 5G has given the Indian telecom industry much-needed optimism about its outlook 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 will be the major growth catalyst for the Indian telecom industry for the current decade. With 5G, telcos have the opportunity to target enterprises with their services and solutions. 5G has use cases in multiple industries, such as smart factories with IoT capabilities in manufacturing, telemedicine and remote operations 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 mainstream consumer, we are likely to see significant consumer adoption as well as 5G services.
PLI scheme to boost domestic production
The Government of India has approved the introduction of the Production-Linked Incentive (PLI) program in the Telecom & Networking Products sector to boost domestic production, investment and export of telecom and networking products. The PLI scheme will help India to become self-reliant and reduce dependence on imports of telecom and network equipment. It will also facilitate the establishment of a local supply chain for telecom products. With the inclusion of design-driven manufacturing, the LAKE scheme will stimulate the creation of IP-driven innovations around local designs and lead to the emergence and growth of an ecosystem of telecom components.
Reforms in the telecom sector
In September 2021, the Indian government announced several long-running structural and procedural reforms for the debt-ridden telecom sector. These reforms are expected to promote healthy competition, protect consumer interests, provide liquidity, stimulate investment and reduce financial stress and regulatory burden for telecom service providers. With the new telecom law likely in 2023, another set of reforms is expected (Telecom Reforms 2.0), which are expected to further facilitate business for telecom companies.
Strong subscriber base and data usage
According to TRAI, India is currently the world’s second largest telecommunications market, with a total subscriber base of 1.17 billion as of July 2022, of which 55% is urban subscriber share and 45% is rural subscriber share. As of July 2022, the telephony density in India is 85.11%, of which the urban teledensity is 134.78%, while the rural teledensity is 58.37%. From a data usage perspective, the average monthly data usage of wireless data subscribers has increased from 61.66 MB in March 2014 to 14 GB as of June 2021, an increase of more than 22,000%. 5G is expected to further accelerate the rise in average monthly data usage for mobile data subscribers in the coming years.
Despite the growth engines, there are still some challenges associated with the telecom sector that need to be addressed to enable a robust, healthy and viable telecom sector for India. Some of these challenges are:
High upfront investment costs
The spectrum cost for the 3.5 Ghz band in 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 must invest in establishing and upgrading existing infrastructure to enable 5G coverage. However, it may take at least 2-3 years for telecom companies in India to see the results of the telecom reforms.
RoW issues
The right of way has been a major problem for the telecom sector in India due to bureaucratic challenges. However, with 5G, the government has simplified the RoW rules, reducing the time spent on it Queue applications. This rapid approval process will help telcos set up the necessary infrastructure and roll out 5G at a much faster pace than usual.
Fiberization
In order for 5G to become pan-India, India must be at least 70% fibred. India currently has 35.11% fiberization of its network and it will take at least 2-3 years to reach a stage of fiberization where it can make the 5G services available at the Pan-India level.
Low ARPU
India has one of the lowest mobile tariffs in the world. Low ARPU means operators are operating on thin margins and unable to reinvest capital into improving infrastructure, leading to poor quality of service. In the long run, all telcos are expected to increase their ARPU, especially with the launch of 5G services, with the possibility of taking it to the level of Rs 300 ($3.64) in the next 2-3 years.
In conclusion, the telecom sector is a crucial multiplier of the economy that cuts across sectors and forms the basis for all the connectivity and communication of the new era. According to Prime Minister Narendra Modi, Digital India’s success is based on 4 pillars including device cost, digital connectivity, data cost and digital-first approach. The telecom sector is a common factor across all 4 pillars, and the coverage of telecom services in all regions is an integral part of India’s growth as an innovative and digital society.
