While India needs to amend telecom-sector policies, it also needs to shift the focus of Aatmanirbhar Bharat to high-value components and activities.
By Sanjay Kapoor
Twenty-five years is a long time for any measure and when it comes to technology, a period of two-and-a-half decades denotes an era change. The telecommunication industry in India dates back to 1850 when telegraphy – the long-distance transmission of textual messages using symbolic codes – was started between Calcutta and Diamond Harbour by the British East India Company and it continued to evolve organically till the early 1990s. The government separated the Department of Telecom (DoT) from the Indian Post and Telecommunication Department in 1985 and anointed Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) in 1986 to operate telecom services in Delhi and Mumbai, and international long-distance operations, respectively.
The real telecommunication revolution in India started post-liberalization and privatization of the economy and the subsequent announcement of the National Telecom Policy (NTP), 1994. The country made its first mobile telephone call on 31 July 1995 on a 2G network. Since then the telecom transformation has been awash with structural changes, hyper adoption, technology evolution, value creation, bankruptcies, litigations, and regulatory changes. Despite such tumultuous activities this virtual infrastructure has enriched our personal and professional lives, kept us globally relevant, and been our savior during the cataclysmic times of COVID-19.
Christopher Columbus never set out to prove that the earth was round, but the structural evolution of India’s mobile telephony sector has proved what the humans have known axiomatically, the earth is round, for thousands of years. It is enigmatic that the market structure of Mobile Service Provider (MSP) has actually come a full 360 degrees in the last 25 years.
The inevitable, consolidation post 3G, was an outcome of the policy
bane which led to bankruptcies, closures, and value destruction in
the sunrise sector.
The sector started its journey with two players (duopoly) per license area and then morphed into becoming an oligopoly with the fourth cellular license being awarded in 2001. From there on, the sector got distorted to becoming an unsustainable hyper-competition, with the advent of National Telecom Policy 2012 which introduced the Unified Licensing Regime and delinking of the spectrum from the license. The inevitable, consolidation post 3G, was an outcome of the policy bane which led to bankruptcies, closures, and value destruction in a sunrise sector. We, resultantly, conflated to a sustainable oligopoly once again – a structure that has found economic and regulatory acceptance globally.
With the overhang of AGR dues, monies required to stay competitive and investments for 5G, etc. we may be running the risk of slipping into an undesirable duopoly once again, which can be neither good for the customers nor the industry or the nation.
Unfortunately, the structural consolidation is not confined to the service providers alone but has impacted the infrastructure providers as much from both a geographical dispersion and the perspective of the number of technology providers. During the 25-year journey, the technology revolution has also shifted from North America and Europe to China, especially Huawei. Despite, the current geopolitical situation and polarization, the evolution of technology towards Open RAN, software-driven networks, and network functionality virtualization is likely to bring in new network solutions from non-traditional players on an integrated and collaborative canvas. Japan’s largest e-commerce site, Rakuten, for example, has become the country’s fourth mobile operator with a fully virtualized, cloud-native network. Their success may lead to an industry structure few can comprehend today!
Similarly, on the device’s side, we’ve come out of an era of Nokia, Motorola, Ericsson, and Sony to a device ecosystem that is polarized by two operating systems developed by Apple and Google and devices manufactured and marketed by Apple, Samsung, Huawei, Xiaomi, Vivo, and One Plus, etc. These companies either did not exist or were irrelevant in this space until very late in our journey.
Heuristic changes that the industry witnessed around its eco-system were both incriminating and rewarding during their evolution. The eco-system comprising infrastructure vendors, device manufacturers, and essentially the MSPs, was uncomplicated in the 2G era. However, as we started moving from 2G to 3G, the VAS play got introduced and the power of device manufacturers increased due to their smartphone operating systems. And this happened despite no device subsidies in India. MSPs globally were busy milking the age-old SMS and voice revenues and didn’t notice their cheese moving.
The eco-system complexity was brewing, and the first noticeable dent was caused by the likes of WhatsApp when they eroded the profitable SMS revenues and subsequently, with the advent of 4G, even voice became an application of data. Like most disruptions, across industries, the MSPs were caught dawdling and OTT players, with innovative offerings, started dominating the non-access revenues of the industry. It was more a “turf issue” at that stage and MSPs lived with a threat of becoming dumb pipes. The rest is history. The top 5-6 global OTT players probably have more cash and innovative capacity than 800 plus MSPs across the world. It’s when the eco-system is coming to terms with “winner cannot take it all” and there is a need for collaboration between device players, storage and cloud companies, security companies, content, and digital services providers, access providers, etc. to deliver a “differentiated customer experience” that the turf war seems to be quelling.
Policy makers need to get the spectrum prices to globally competitive levels and bring down industry’s overall taxation while making
the framework simple.
Today, operating models are transforming to make the dumb pipes smarter, either organically or inorganically. The spirit of coexistence and coopetition is taking precedence. JIO’s current traction to get FB, Google, and Microsoft, etc. in the same tent is the biggest testimony for things to come around the new normal of industry’s eco-system. Their all-encompassing, digital services aspiration is a new shibboleth for others to envy or emulate.
India’s 25 years of mobile telephony story will remain incomplete without the role of wire in a wireless country. Across the world, the growth of wireless communication has always been accompanied by the growth in wired connectivity. However, for reasons well known to us, India bucked this trend and the wired segment never really grew. Rather, it has been going down and stands at 1.99 crore as compared to 114.952 crore wireless subscribers as on 30 April 2020, according to the TRAI.
India has fiber in its cities, but that essentially provides inter-city connectivity. We have also participated in global under-the-sea cable consortiums to ensure seamless international connectivity for voice and data, but the intra-city connectivity that’s required for the real broadband experience to homes and SMEs is still dismal. Today, the number of people on fiber networks with gigabit speed is minuscule and the pervasiveness of gigabit homes seems a distant dream. In fact, the country still runs on a massive network of copper including Airtel, Vodafone-Idea, BSNL, and MTNL. According to estimates, less than 25% of towers in India are fiberized as compared to China, Japan, and the US where about 80% of telecom infrastructure is fiberized. A Crisil report indicates that for 5G technology to really take off, India needs a fiberization level of 70%. This translates into an investment of over Rs one lakh crore in laying fiber networks in the next 2-3 years. The learning from COVID has only accentuated the demand for fiber access, to facilitate work from anywhere.
Consumer behavior and demand have necessitated technological changes in our network services and products. We have done reasonably well despite being laggards on the adoption of 2G, 3G, or 4G while serving our customers with tight spectrum resources and collaborating for resources with our most fearful competitors. However, going forward we have to be cognizant of our economic growth, per-capita income growth, latent data demand of consumers coupled with form factor changes of digital content, and rising customer experience expectations while making latent calls on technology adoption.
The world of 5G, here on, is not merely about ultra-high-speed, low latency, and IoT but more about use cases and solutions, a B2B mindset Vs. B2C alone, end-to-end experience as opposed to connectivity, non-linear thinking, intense collaboration, and deep analytics. Both MSPs and the government will have to shred the legacy to enrich individual lives, enable businesses, and render our country competitive.
Policymakers need to get the spectrum prices to globally competitive levels and bring down the industry’s overall taxation while making the framework simple. There is a need to shift the focus and incentives under Aatmanirbhar Bharat from mere low value-added assembly and packaging to high value-added components and activities. This will help stimulate the manufacturing nucleus. MSPs on the other end need to raise prices substantially to sustain their business model and customer experience.
As Socrates had said, “The secret of change is to focus all of your energy, not on fighting the old, but on building the new.”
The author Sanjay Kapoor is an entrepreneur and TMT Advisor