The demand for telecom equipment in India which was around Rs 75,000 crore in 2012-13, is projected to reach Rs 1.70 lakh crore by 2019-20. Have domestic players geared up to meet this equipment demand? We do a reality check.
India´s telecommunication network is the third largest in the world and the second largest among the emerging economies of Asia. It has witnessed phenomenal growth over the last decade as substantiated by the following facts and figures:
The Indian telecom sector is dominated by private players who control over 85 per cent of the entire sector. Bharti Airtel, Vodafone, Tata Teleservices, Idea, Reliance and Aircel are some of the key players in the private sector while Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) are the major players in the public sector. With many new licences being granted, the competition is expected to intensify.
On the other hand, there have been some downsides too in the last few years. The shakeout from the 2G scandal in 2012 has brought in some uncertainty, impacting to some extent the foreign investment and consequent infrastructure development. There has been a decline in equipment production too, after some service providers scaled back operations or exited the country following the top court´s annulment of permits held by them.
Nevertheless, with the new government´s pro-industry attitude and with many new initiatives and developments on the cards like National Optical Fibre Network (NOFN), the Digital India campaign, 4G services etc., the industry is poised for renewed growth, aver industry pundits despite some impediments, limitations and challenges.
The industry has no doubt opened up new doors to its players, with benefits to be reaped by all-from telecom service providers or operators, infrastructure providers to equipment manufacturers, and application developers.
´There is considerable potential for growth for tech and telecom firms like ours in India. A burgeoning middle class and tech-savvy population is fuelling ´hockey-stick´ growth in the country. India is at the inflection point for the uptake of the Internet of Things: we have seen it in e-commerce and in the uptake of smart phones. There are now over 900 million connected devices in India,´ says Nigel Eastwood, Chief Executive Officer, New Call Telecom (NCT), a UK-based Internet Service Provider, which recently acquired Nimbuzz, a fast-growing Indian mobile technology brand with more than 200 million users across the globe. NCT is currently working on rolling out a national network of free public Wi-Fi hotspots and Wi-Fi zones, and is in talks to acquire a number of other mid-tier companies including a fixed-line operator. With much of the growth concentrated in the metros and Class A circles until now, the new avenues for expansion are likely to be in Class B and C circles and rural areas. Already major players are focusing on increasing their geographical coverage in these segments. NOFN is set to link 600 million rural citizens across 250,000 gram panchayats spread over 631 districts.
No doubt the rapid strides made by the telecom industry have been facilitated by a supportive regulatory framework. The Telecom Policy of 1994 which opened the doors to private players, the establishment of the Telecom Regulatory Authority of India (TRAI) in 1997, the New Telecom Policy 1999, the Broadband Policy 2004, Broadband Wireless Access Policy 2008, the 2G and 3G policy, have all no doubt raised the horizon of the telecom industry. But there is much more to be done, aver industry professionals. The grant of infrastructure status to the telecom industry has been a major demand. Even the Working Group on the Telecom Sector for the Twelfth Five-Year Plan (WGTS) had recommended it in its report along with other reforms: ´The grant of infrastructure status for the telecom sector is essential for further growth and expansion for both wireline and wireless. The telecom sector may also be allowed to access funding from Indian Infrastructure Finance Company Ltd (IIFCL). In addition, a Telecom Finance Corporation may be created as a vehicle to access funds at competitive rates to facilitate the funding needs of this sector, if found necessary. Rationalization of levies and taxes in the sector may be reviewed from time to time to ensure affordable delivery of services to the consumer,´ says the report.
´There has not been any substantial change in policy for a while,´ laments Rahul Sharma, President, Telecom Equipment Manufacturers Association of India (TEMA). He adds, ´However, the new government has taken several initiatives recently like ´Make in India´, Digital India and PMA, which are under implementation. We would be able to see results in due course of time.´
The government must consider updating the key policies for attracting foreign investment, opines Eastwood: ´The government must ensure liberal laws, giving tax and non-tax incentives to investors. Currently, several existing tax provisions exert additional burdens on the industry. As a newcomer in the Indian telecom market, we would seek efficient policy changes, coupled with effective implementation to sustain and promote growth so that companies like ours can partner with the Indian government in connecting rural areas with high-speed Internet networks.´
The growth in the domestic telecom industry has largely been concentrated in the metros and Class A circles. The coverage in the Class B and Class C cities as also rural areas has remained low. Rural links have been plagued by the non availability of backhaul and last mile connectivity.
´One of the reasons for poor rural coverage is non-availability of backhaul which would connect the base station/access network to the core network. The government´s ambitious project NOFN strives to address the problem of backhaul up to gram panchayat level. We have also addressed the backhaul issue by developing low-cost unlicensed band radio backhaul leveraging off-the-shelf Wi-Fi technology with our modifications. We are also working for technology in UHF TV band radio which would address the gap in deploying rural broadband access,´ avers Prof Abhay Karandikar, Professor, Department of Electrical Engineering, Indian Institute of Technology- Bombay, and Coordinator, Tata Teleservices-IIT Bombay Centre for Excellence in Telecom (TICET). TICET has been working on many projects relevant to the telecom industry in general and the project sponsor Tata Teleservices in particular. ´Our significant achievements have been in long distance unlicensed band radio backhaul, network opex optimization for energy cost saving, green telecom and mobile social networking. The center has been granted three US patents in wireless networks areas,´ reveals Prof Karandikar who played a leadership role in setting up Telecommunications Standards Development Society, India (TSDSI) which contributes to the global telecommunications standardization process and acts as a catalyst for the development of design and manufacturing expertise in the Indian subcontinent.
The Telecom Centres of Excellence have also been set up by the government at IIT Delhi, Kanpur, Kharagpur, Indian Institute for Science-Bangalore and Indian Institute of Management Ahmedabad, with each centre sponsored by a telecom operator, with a view to promote research and development in the telecom sector.
The demand for telecom equipment in India which was around Rs 75,000 crore in 2012-13 is projected to reach Rs 1.70 lakh crore by 2019-20. However a great proportion of this demand is met through imports. Indian firms that design, manufacture and also have intellectual property, had only 3 per cent share of the market in 2012-13. Apart from the economic issue, imported equipment also pose a big security threat.
This is why in 2014 , faculty members from IITs, IISc and IIM-A urged the government to set up a new Telecom Research and Development Fund (TRDF) and Telecom Entrepreneurship Development Fund (TEDF) to promote R&D in product development, and manufacturing, Intellectual Property Rights (IPR) and start-ups in the sector. Even the National Telecom Policy (NTP) 2012 has proposed the creation of such funds. However, nothing much has taken shape so far.
In addition, several other measures are required to promote the equipment industry, say industry professionals. ´The growth measures required for the manufacturing sector include making standards and testing mandatory by TEC (Telecommunication Engineering Centre), imposition of custom duty on all items not covered in ITA-1 (Information Technology Agreement), effective implementation of PMA (Preferential Market Access) for both private and public sector and adequate funding for research and development/innovations,´ says Sharma. Revival package for ITI, spectrum for innovations/local manufacturing as per IND 55 in Spectrum policy, removal of experience criteria for new technology/innovations/recent locally manufactured equipment, extension of various incentives by Department of Electronics and Information Technology under electronic policies to private educational institutes besides IIT and licence for white spectrum are the other measures listed by Sharma. WGTS also recommended promotion of indigenous manufacturing. ´The design, development and manufacturing of its own telecom equipment is a big opportunity for India, creating huge value as well as large employment. With the right policies to promote R&D, IPR creation and manufacturing, India can certainly deliver. It is imperative that India moves rapidly in nurturing and strengthening its telecom R&D, IPR creation and product industry,´ says the report.
In addition, the international players have been feeling the pinch and there has been a decline in production since 2012 after the court´s annulment of 122 permits. ´Yes, after this episode, there has been a decline in production due to the cancelled licenses. By and large the existing operators have been meeting the demand but they too are facing an investment crunch and having difficulty in making big investments in latest technology. Spectrum is also a big problem area for operators. It is hoped that auctions may bring in hope for investments, especially with some new operators entry,´ states Sharma.
Funding remains a key issue for the telecom infrastructure industry. Investments in the industry have a gestation period of 25-30 years, which impacts investor interest. Investment in infrastructure has, to a significant extent, depended on India attracting foreign investment. At present 74 per cent to 100 per cent FDI (Foreign Direct Investment) is permitted for various telecom services. However, the regulatory issues and declining operator margins have slowed down investments.
´We had recommended setting up of a Telecom R&D and Manufacturing Fund for giving a thrust on indigenous R&D and manufacturing in the telecom sector. I hope the government with a focus on ´Make in India´ will make this a reality,´ hopes Prof. Karandikar who was also a member of the WGTS.
The infrastructure segment remains a key growth driver for telecom services. At present, there are broadly two kinds of operators in the industry-tower infrastructure subsidiaries, which are the tower divisions of the telecom-operator companies and independent tower infrastructure companies (ITICs). With many telecom companies expanding their coverage, passive infrastructure has assumed the status of an independent industry in the last few years. However, overall, sharing of both passive and active, is being considered beneficial for all parties involved as it enables the companies to minimise duplication of efforts and costs and improve profitability. With leading GSM players forming a consortium (Indus Towers) and other larger players such as Tata Teleservices and Reliance Communications entering into long-term agreements for passive infrastructure sharing mostly with their tower subsidiaries, the new and smaller third-party infrastructure providers are likely to get most of their business from smaller players and new entrants.
Industry experts are of the view that demand for passive telecom infrastructure in India would continue to grow at a healthy rate, at least over the medium term, and that this increased demand would be accompanied by greater sharing of infrastructure by the existing as well as new telecom players.
With all the growth and developments the environment has become increasingly complex and challenging, making it necessary for investors to carefully navigate issues such as risk, costs and domestic legislations, etc. Other key challenges have been telecom penetration far exceeding grid power availability, highly decentralised and manpower intensive operations and touch logistics supply chain for remote areas. Infrastructure providers are still grappling with several issues like delays due to multiple approvals from government, right-of-way (RoW), low tenancies (particularly following the cancellation of 2G licences), high energy costs and new radiation emission norm along with slow deployment of 3G/4G networks in semi-urban and rural areas, among others. Further, each State has its own rules for granting permission for erecting towers, which results in cost escalations.
Implementing the Optical Fibre Network in rural areas will also pose some challenges, says Prof Karandikar: ´For optical fibre, acquiring right of way, digging and laying is a time-consuming and costly exercise. Maintenance of long haul optical fibre network is also a challenge.
The future of the telecom industry, despite all the challenges and limitations is very promising as India still has a huge untapped potential. And the industry is positive that under the present government, positive measures will propel the growth of this sector.
´Projects like Digital India by 2019 and 100 smart cities by 2022 demonstrate real commitment to future growth. These projects will make the Networked India concept a reality by eliminating the digital divide between the urban and rural population and enabling service delivery through digital channels. And it is not just large corporations which will benefit from these ambitious projects. In India, as in the UK, small and medium-sized business (SMBs) are a major contributor to GDP, and they will gain immensely from these initiatives,´ points out Eastwood.
Much of course will depend on the implementation of the projects and the government´s ability to lay down a clear roadmap for future reforms, including creating an environment that will attract investment into the industry, encourage technological advancements and promote local players.
´India must update key policies for FDI in infrastructure´
Nigel Eastwood, Chief Executive Officer, New Call Telecom (NCT), a UK-based Internet Service Provider, speaks on the state of the Indian telecom industry.
Last August, NCT announced its plans to invest around $100 million in India and acquire con¡trolling stake in four technology companies. What is the status today?
Our strategy is to fuel our growth in India through the acquisition of mid-tier telecom companies. We recently acquired Nimbuzz, a fast-growing Indian mobile technology brand with more than 200 million users across the globe. We are currently working on rolling out a national network of free public Wi-Fi hotspots and Wi-Fi zones. We are also in talks to acquire a number of other mid-tier companies including a fixed-line operator.
What opportunities exist in India for international players?
There is considerable potential for tech and telecom firms like ours to grow in India. A burgeoning middle class and tech-savvy population is fuelling ´hockey-stick´ growth in the country. India is at the inflection point for the uptake of the Internet of Things: we have seen it in e-commerce and in the uptake of smart phones. There are now over 900 million connected devices in India.
What factors have attracted NCT to invest in India?
India is attractive to investors like NCT not only because of the potential demand but also because of her ambition. India is at the start of an incredibly exciting journey, that is going to be powered by technology. Projects like Digital India by 2019 and 100 Smart Cities by 2022 will make the Networked India concept a reality by eliminating the digital divide between the urban and rural population and enabling service delivery through digital channels. And it is not just large corporations that will benefit from these projects but also mall and medium-sized business (SMBs) will gain immensely from these initiatives.
In addition, India is a natural fit for a business like ours. English is spoken widelyùin fact, in some places, it is the first language. Also, doing business in India is similar to doing business in the UK: consumers share some of the same wants, needs and norms, and they have very similar regulatory frameworks.
What are NCT´s business plans for India ?
At the moment, the fixed-line infra¡structure for SMBs in India may be 5-10 years behind that of the UK and other Western countries. So there is an absolute need for a broadband operator focused on SMBs. This segment needs a robust broadband network. We are looking to partner with a company that targets these needs and addresses the problem of connectivity. At the same time we are planning to roll out applications developed by Nimbuzz that will enable businesses to start e-commerce operations.
NCT is in a unique position to create a next-generation Internet for individuals and businesses. We are developing an app ecosystem with consumers in mind, creating apps for business including looking at Big Data and Money Transfer, as also creating a one-stop connectivity solution for both consumers and businesses.
What are the challenges for NCT in India?
We are currently in the process of identifying the right long-term partners that fit with our growth roadmap. This in itself a challenging task, considering the high number of outstanding entrepreneurs and the multitude of talent in India, especially in the technology space. We are also looking for support from the government and the regulatory bodies in achieving our long-term goals in the country, which in turn will help the sector to grow as well as harness entrepreneurial talent in the country.
How do you foresee the future of telecom industry in India? What measures are required to boost the industry ?
We are very excited by the Honorable Prime Minister´s Digital India dream. However, to realize that dream, the government must consider updating the key policies for attracting foreign investment into the ICT and infrastructure sector. The government must ensure liberal laws, provide tax and non-tax incentives to investors so that they can work effectively with the Government. Currently, several existing tax provisions exert additional burdens on the industry that not only require a thorough review but also a complete revamping in few cases. As a newcomer to the Indian telecom market, we would seek efficient policy changes, coupled with effective implementation to sustain and promote growth so that companies like ours can partner with the Government in connecting rural areas with high-speed internet networks.
The vision of ´Make in India´ relies heavily on SMBs. ICT can help Indian SMBs address the challenges of global competition and a volatile business environment. The growing adoption of Smart phone apps that enable VoIP calling, instant messaging, navigation and tracking as also improve mobility and workforce productivity, have opened new business opportunities for SMBs in India. Technologies like VoIP, IP PBX, virtual office, virtual meeting and video conferencing are redefining SMB businesses by bringing significant savings in telecommunications costs and improving operational efficiency. With the support of these technologies, Indian SMBs will be in a position to truly compete with global competitors. However, the Government should try and relax foreign investment policies so that India´s technology can advance at the rate needed by both SMBs and larger corporations.