With the launch of 3G services and the expected roll out of wireless broadband, the Indian telecom sector is planning for the next level of growth. To support this and provide a transparent policy framework for the sector, the government is planning to soon release the National Telecom Policy (NTP), 2011. tele.net talks to industry leaders about the expectations from NTP, 2011, the benefits of 3G and the way forward...

What are your expectations from the National Telecom Policy, 2011?

Rajiv Bawa

The NTP, 2011 must set a predictable operating environment, treat all operators equally and fairly, refrain from making retrospective changes to licence agreements, and clearly be growth inducing. The biggest area of uncertainty and concern across the industry is with regard to the policy that governs spectrum allocation. The NTP, 2011 needs to ensure that contractual agreements are not modified retrospectively. The Telecom Regulatory Authority of India (TRAI) also recommended the same when it maintained a new operator’s contractual right to 4.4 MHz start-up and 1.8 MHz subscriber-linked spectrum. Therefore, the fact that a new operator receives up to 6.2 MHz of spectrum and the criteria based on which he receives it must not be changed midway. The policy must also ensure that the rules for acquiring spectrum beyond 6.2 MHz should be the same for all operators. We are also looking forward to the introduction of concepts such as spectrum sharing and trading as well as more favourable policies on mergers and acquisitions (M&As). M&As, in particular, can ensure that those who are not serious about staying in the market can exit so that others can compete more effectively.

Deepak Gulati

We are upbeat as far as the upcoming NTP is concerned and believe that it will accelerate the aggressive adoption of next-generation technologies amongst telecom service providers in India. We are also hopeful that the upcoming policy will attempt to correct the shortcomings of the earlier policy by removing the existing bottlenecks and regulatory challenges. Hopefully, the NTP, 2011 will meet our expectations and be successful in setting new user paradigms.

Rajat Mukarji

There are several new policy initiatives that are currently under discussion, including an M&A policy, which will have a positive impact on the development of the industry. This is vital for reducing the fragmentation of spectrum that has happened with the introduction of new players. The second most critical element for a healthy telecom industry is the principle of a cost-based interconnection. The interconnection usage charge (IUC) is being reviewed by TRAI, which recently issued a consultation paper on the same. We believe that a proper IUC regime, which fully accounts for costs, will provide critical linkages to future telecom investment. We are confident that the rapid growth of the Indian industry will be sustained by the implementation of forward-looking policy changes.

Samaresh Parida

India needs a stable, fair and predictable regulatory environment for the next stage of sector development. Vodafone is encouraged by the government’s decision to formulate the NTP, 2011. Some of the key recommendations are as follows:

•   Auctioning spectrum (even 2G) in bulk quantities irrespective of circles

•  Stopping discrimination between CDMA  and GSM technologies

•  Letting market forces trigger consolidation among companies

•   Not putting a cap on the number of players per circle or on their market share.

How are 3G services expected to influence the sector? What positives do you see in terms of revenue contribution and ARPUs?

Rajiv Bawa

Uninor has been a bit of a contrarian here. We were the only operator that announced very early on that we would not participate in the 3G auctions. We have a very clear view on this, and one that has since held true. Basic voice and SMS is still the majority of the market in India, and a lot more can be done in these areas to offer our customers a superior experience. Internet demand, though growing steadily, is still dependent on applications that are successfully met on a newer and congestion-free 2.75 G or EDGE network. So that is where we have chosen to focus.

The demand for sophisticated and advanced functionalities that the 3G platform offers is still low and we do not expect it to be significant in the near future. Of course, at a later stage, this will become a bigger opportunity. At that time, an operator such as Uninor would be able to get into 3G or even leapfrog into 4G, as the business case demands.

Deepak Gulati

Globally, 3G services were launched over a decade ago. In India, it will take time for these services to reach an inflection point as there is a learning curve involved. It will take some time for consumers to understand the importance and lifestyle-enhancing impact of these services. We have already begun hitting the right notes and if we were to go by the new Wireless Intelligence Study, the number of 3G subscriber connections in India is expected to reach 400 million by 2015. With 3G, innovation is crucial. Since the technology allows high speed broadband access to smartphones and mobile modems, bandwidth-consuming applications like games, music downloads, accessing social networking sites and mobile TV are now easily possible. Whether in a mobile phone, fixed wireless phone, wireless modem or a data card, 3G services in India are going to influence the telecom sector growth because it is an affordable way to access next-generation voice and data services. 3G technology and services enable easy video broadcast and data-intensive services such as stock transactions, e-learning and telemedicine through wireless communications. It also provides new avenues to address issues of public importance such as internet connectivity, education, public safety, healthcare, governance and environmental conservation in a sustainable, efficient and cost-effective manner. Over the next couple of years, the Indian telecom industry is expected to witness a surge in demand for a wide range of multimedia services that can be facilitated by high speed data throughputs. As 3G offers high speed access and next-generation services, it definitely impacts revenues positively. After the launch of 3G services in India, there has been an average 10-15 per cent increase in our revenues per subscriber.

Rajat Mukarji

There is tremendous potential for mobile broadband in India. Over 30 per cent of the country’s population is still not connected with mobile services, and a whopping 90 per cent does not have access to the internet. 3G is expected to bridge this gap, thereby providing a huge opportunity for large mobile service providers such as Idea Cellular. Our belief is that with the stabilisation of 3G services, the major telecom operators will witness the same growth rate as witnessed by wireless telephony between 2000 and 2007. Even though 3G has witnessed a delayed entry in India, we have the learnings and experience of the developed countries to benefit from. The ecosystem that hampered the growth in developed countries has now transitioned and is well developed. 3G technology has reached a stage where consumers can truly enjoy the broadband experience it offers. 3G-enabled phones and smartphones are available at affordable prices, making the service available to a wider audience. We do expect an increase in revenue from data services that should arrest the declining ARPUs.

Samaresh Parida

With the voice market maturing, operators are looking at data/internet services as the new avenue for generating revenues. Data consumption will be in demand with the launch of 3G services in the country. People will get used to data usage, which will increase the use of the internet usage on the go. There will be different kinds of services and applications introduced that will lead to greater innovations in the handset space and consequently a mobile phone would play a greater role in our customers’ lives. Also, value-added services (VAS) like caller tunes and SMSs, which have always been considered on the side, will come at the forefront for all operators. This new technology will trigger the demand for new gadgets and gizmos that will offer customers the choice of enjoying various applications and services while on the go.

What are the key bottlenecks in the sector?

Rajiv Bawa

This industry, like any other, needs a stable and predictable regulatory environment. Once you know that the terms and conditions you signed up will not be changed midway, when you know that the policy will continue to treat you the same as the other operator, you would invest with confidence. You would commit those investments for the long term and focus only on meeting your goals. A regulatory environment that treats all operators in the same manner, and a policy environment that does not make material changes to contractual rights midway is the most important need of the industry. Once this happens, there is no limit as to where this industry can go and what impact it can have on the country’s economic growth.

Deepak Gulati

The following are the key bottlenecks currently existing in the telecom industry:

•   Low penetration, due to which telecom service operators bear huge costs to make inroads, which makes breaking even more difficult

•   Huge investments on managing networks and services

•    Limited spectrum availability and interconnection charges between the private and state operators.

Rajat Mukarji

The telecom industry has a very high incidence of taxes and duties. There is a need to rationalise the duty structure to enable healthy growth of the overall industry.

Samaresh Parida

Some of the issues faced by all operators in the sector are:

•  Inadequate and limited allocation of spectrum

•   India’s unpredictable regulatory and policy environment

•  Consolidation and M&A rules – India is a hyper-competitive market with more than 17 players. Current M&A rules have many restrictions and impose heavy costs

•  Financial implications – Shareholders have become far more critical about funding because the financial results are not up to their expectations.

What is the way forward for the sector?

Rajiv Bawa

We believe that there will be two main trends witnessed in the future. On the one side, technology has been leapfrogging every few years. This trend will be about faster data, sophisticated VAS, machine-to-machine concepts, where SIM cards will be used in automobiles and domestic appliances. There will be tremendous growth in this direction. The other trend will focus on the millions of Indians who are yet to experience their first mobile connection. And also about the millions more who want a second or third SIM card, and a mass market that wants simple, highly affordable and reliable voice offerings. We are talking about a future where teledensity, as measured in terms of SIM cards, is well over 100 per cent. It also offers many opportunities for mobile operators.

Deepak Gulati

The Indian telecom industry has come a long way since its liberalisation era. The industry has witnessed exponential growth, especially in the wireless segment in the past few years. The plethora of telecom services, evolved over the years, ranging from basic telephony to voice, video and data services, have catalysed revolutionary changes in the business operations for the service sector, besides providing access to the world of new technology for millions of people. Even though the telecom sector has shown promising growth, the country’s teledensity still remains at a low level as compared with international standards and thereby provides tremendous opportunity for future growth.

Going forward, the industry will continue to record good subscriber growth as a result of low penetration levels, heightened competition, a sustained fall in minimum subscription costs and tariffs that increase affordability for lower-income rural users, and expansion of coverage area by mobile operators. The presence of a skilled labour pool, improving telecom infrastructure, favourable demographics, rising disposable incomes of consumers, declining tariffs, increasing demand, growing uptake of mobiles with new features and greater availability of handsets at lower prices are expected to continue driving the growth of the telecom sector.

Rajat Mukarji

A large corpus exists under the Universal Service Obligation Fund that can effectively be utilised in creating a robust rural penetration policy, which would include the “greening” of the industry as a whole. There is substantial potential for the use of alternative energy to power remote sites and this fund could provide the much-needed initial financing required for the implementation of different alternative energy schemes.

Spectrum is the most critical raw material for the healthy growth of the wireless industry in India. There is an urgent need for the allocation of additional spectrum at rates that will balance the need for long-term telecom growth.

Additionally, initiatives that will reduce the overall cost from the policy or regulatory standpoint are the need of the hour. Instead, regulatory costs of running networks have been growing consistently over the past two years.

Samaresh Parida

In the coming years, the key growth drivers for the telecom industry would be 3G, enterprise business solutions and rural penetration. The launch of 3G services will increase the consumption of data services and bring VAS at the forefront for all operators. Enterprise services are emerging as the new area for business growth in India. The enterprise market is growing at a 10 per cent annual rate.