Even as the Indian telecom industry moves from strength to strength, it continues to face several policy-related challenges. High taxation and levies, lack of innovation and the fair-share debate are hampering the growth of the industry.
Fierce Wireless spoke with Lt. General Dr SP Kochhar, director general at the Cellular Operators Association of India (COAI), which represents several service providers, including Reliance Jio, Bharti Airtel and Vodafone Idea. He spoke at length on the following key topics.
Fair share debate
Recently, in a response to the consultation paper issued by the Telecom Regulatory Authority of India (TRAI), the telcos said that the large traffic generators should share the cost of network deployment. Explaining telcos’ position, Kochhar said, “Around 80% of the data traffic that telcos carry is generated by the subscribers of the top 4 or 5 companies [Large Traffic Generators] who do charge their subscribers and yet they don’t pay us. If our traffic is only consuming 20% of the load and 80% comes from Large Traffic Generators, then obviously, LTGs are advantaged unnecessarily.”
“In many countries, almost 25% of the service providers have actually folded up or been taken over because they could not afford to continue the operations. In some countries, like South Korea, Netflix has entered into an agreement with SK Telecom, the biggest service provider in the country. Similarly, the European Union is well on its path to enact legislation for this. The Indian Government must recognize that this needs to be done,” he added.
Media reports on upcoming spectrum auction
Several recent media reports indicate that the government may go for a spectrum auction in this financial year. Last year the country had conducted a 5G spectrum auction. The top two telcos, Reliance Jio and Bharti Airtel have deployed 5G in several parts of the country but clearly are yet to utilize all the spectrum they purchased last year.
“At this point, the telcos have not yet fully utilized the spectrum that they had purchased. The response of the industry depends on which band the government plans to auction. The telcos require more spectrum in mid-band, but it is not available unless and until they clear off some segments from defense. The next spectrum of choice is the 6 GHz spectrum, so if the auction comes up in the 6 GHz band, I think telcos will participate. However, if it comes up in bands which are not going to be utilized for a few years, I doubt if anybody would be keen,” said Kochhar.
High taxation on telecom industry in India
Indian telcos have been complaining about high taxation and levies for several years now. Recently, this debate was back with the country’s Apex Court ordering telcos to consider license fees as capital expense and not expense, which has led to additional tax liability for older telcos, Bharti Airtel and Vodafone Idea.
“Private companies in the telecom sector started earning a huge amount of money in the post-1985 period. This was followed by a disruption when one player brought down the prices so much that others had to either fall in line or exit. Unfortunately, the government is going with the mindset that telecom is still the goose that lays golden eggs. This is no longer true. Especially now that telcos have made huge investments in rolling out 5G when the world over, the telcos are still struggling to monetize 5G. Yes, ARPUs have gone up, but so has the capital investment, which is much higher,” he explains.
The road ahead for the industry
Responding to a question on where he sees the industry over the next three years, Kochhar said, “Over the next two to three years, I hope the regulatory framework will evolve to reflect telecom’s evolution as a combination of ICT and electronics. Secondly, I see the Government recognizing that since telecom is a fundamental industry, it needs to be supported, not in terms of doles but in terms of making it a viable business. And in that sense, I expect the cost of our spectrum should come down, fees and levies should go down. And on the business side, I believe the free riders, who are neither contributing to the Government coffers nor are they doing any sharing with telecom, should be brought to task.”
On lack of innovation in the industry
Indian telecom industry, much like its global counterparts, is not known to innovate. As the industry evolves it must innovate and think of new business models to ensure faster monetization of new technologies, like 5G.
“I don’t fully agree, but I can't disagree with [the statement that telcos lack the will to innovate]," said Kochhar. "Actually, if you continue with the telecom business the way it is today, you are not going anywhere. Your revenues will get depleted, and your profit margin will come down, and survival will be under question. So, what I see happening is a clear distinction in the telecom business. There will be network providers, there will be platform providers, and then there will be application providers who run on those platforms. Telcos will be building the networks, and they will lease out their services to platforms. And those platforms may be owned by themselves or somebody else. So those platforms will make money by leasing out their space to application providers. This is the ecosystem I see emerging.”
“In this ecosystem, telcos will start participating on all three segments: payments in network - that is their primary business. You'll find them to be 100% in platforms. They'll have to share the platforms with others. In applications, their share will be minimal. Others will come in, including LTGs [Large Traffic Generators]. If this system is well regulated, then the survival of everybody is not at stake, and the growth will be good and uniform,” he added.