India's telelcom sector: A revolution in true sense

Telecom sector was among the first few sectors to be reformed, and one which transformed dramatically as it was gradually deregularised.

In the last 25 years, as the government loosened control, India's teledensity jumped from 0.8% in 1990 to 83.32%, as on April 2016. This means that in the pre-reforms era less than one person per 100 persons was using telecom services. Today, that has shot up to more than 83 persons per 100 people.

There was no way this would have happened if liberalisation, privatisation and globalisation had not been aggressively chased by consecutive governments. This revolution was fuelled by competitive tariff, which is the lowest in the world, and availability of low-cost phones as private players fought bitter battles to grab huge chunks of one of the biggest markets in the world.

Ask anyone in the industry to point out that one big reform that pushed the sector into the rapid growth zone and they are likely to say it was ending the monopoly of state-owned telecom firms and opening it up for multiple private players.

G Krishna Kumar, Bangalore-based telecom executive, said it was Narasimha Rao-led government's move to throw open the sector for privates investment that first indicated a change in mindset. After that successive governments have carried forward the decontrol process.

According to him, among the game-changing initiatives undertaken by governments were; multiple private players in each circle, providing for mobile number portability and supporting technology neutral spectrum usage.

Rajat Mukarji, chief corporate affairs officer, Idea Cellular, believes the key milestones of telecom reforms were the national telecom policy (NTP) in 1999 that brought in the change to revenue share, rebalancing of tariffs and calling party pay (CPP) and spectrum auctions, which have made the process of spectrum allocation transparent.

The NTP that various governments have come out with post-liberalisation have addressed issues related to ownership, infrastructure, foreign direct investment (FDI), spectrum trading and sharing, licence fee, spectrum usage charges (SUC), etc to create a viable ecosystem for the telecom operators.

The government has slowly raised the percentage of FDI permitted into the sector from 49% to 74%, and finally to 100% in 2013. Over the last 20 years, mobile operators have injected over Rs 7.5 lakh crore in setting up mobile networks.

In 1997, the setting up of the telecom regulator Telecom Regulatory Authority of India (Trai) reduced excessive government meddling in matters relating to fixing of tariffs and policy making. The year 2000 saw constitution of dispute resolution body Telecom Disputes Settlement and Appellate Tribunal (TDSAT).

There was a phase when the sector hit a low due to scams, which led to policy flip-flops, negatively impacting the growth of the sector and resulting in increased litigation. However eventually, it resulted in the cleaning up of the system.

"All the scams have ensured that there is much more transparency through auctions and helps the government coffers," said Krishna Kumar.

Spectrum auctions in 2010, 2012, 2013, 2014 and 2015 have earned huge revenues for different governments. The last airwaves bidding, held in 2015, generated Rs 1.1 lakh crore.

Rajan S Mathews, director general of GSM players' lobby body Cellular Operators Association of India (COAI), said going forward the government should look at policies and reforms that help in the rationalisation of costs and levies.

He said that levies constitute 30% of an operator's revenues today, which is among the highest in the world. In fiscal 2015, SUC and licence fees shelled out by operators was Rs194.5 billion, which was 12.9% of the adjusted gross revenues (AGR).

Mathews called for rationalisation and reduction of these charges; "Clearly, we want to ensure that the financial health of the industry is maintained. So, reforms in licensing regime need to be looked into so that those matters (licence fee and SUC) are addressed."

He said the government's goals of broadband for all and connecting all villages would be possible only if the telecom operators were "financially healthy".

"If that (financial health) is not there then investment is not going to flow in to make those objectives real," said Mathews.

Even though teledensity in India has sharply risen, it is skewed in favour of urban sector, which is 153.14% compared to 51.67% in rural areas.

Mukarji estimates telecom players will invest Rs 5 lakh crore over the next five years to roll out services in rural areas and upgradation of existing networks to connect one billion Indians to the internet to achieve the NTP 2012 targets.

"Such huge commitments made by private sector operators would require a climate of certainty, fair and transparent policy making and implementation for them to stay invested and achieve reasonable RoI (returns on investment)," he said.

Going forward, the telecom game will shift from voice to data as India tries to achieve higher internet penetration. As per the official data released in January, it is 34.8% with an internet user base of 462.12 million.

"The next big initiative that has to be looked at and completed is data connectivity for citizens of India," said Mathews. And as the government does that it will have to redial big bang reforms.