With more than 1 billion telecom subscribers as on January 31, 2016, the Indian telecom sector, which is the fastest-growing as well as second-largest after China, continues to be on path of recovery. The sector during the past year has seen improvements in various operating parameters like rising MOUs (minutes of usage), increasing tele-density, double-digit growth in Internet subscribers and increasing data-consumption levels. The government on its part has also supported the sector with lots of positive initiatives such as Digital Literacy Scheme for rural India, NOFN project, launching of payments banks, new spectrum trading rules, Digital India and Make in India programs, which are helping in tapping the unexplored areas of the sector. However, in spite of all these positives, the telecom industry is facing some concerns in terms of spectrum crunch, quality of services, under-investment in passive infrastructure, and intense competition among players; therefore, it would be crucial for the whole telecom industry to tackle these issues before they escalate into major hurdles for the sector in the coming years.
India is gearing to have full tele-density by 2020 and the target seems to be fully achievable with telecom service operators who are expanding their reach every quarter and with renewed focus on rural areas, a fact also proven by rise in rural telecom density which stood at 48.83 percent as on January 31, 2016, showing y-o-y growth of 8.14 percent. However, lack of adequate telecom infrastructure in semi-rural and rural areas could be one of the major hindrances in tapping the potential rural telecom market, as service providers have to incur a significant amount of CapEx in order to set up their presence in rural areas. Moreover, these untapped areas not only lack basic infrastructure such as roads and power but also face scarcity of trained personnel, which further creates obstacles in deployment of services in these areas. On another front, in order to cater to the growing demand for data consumption the telecom service operators have to invest in improving passive infrastructure in the urban areas. The major challenge and concern is the heavy cost of investment coupled with low investment returns along with the lengthy process of getting clearances from various departments and opposition from the RWAs on account of the widespread perception about health hazards from the radiation emitted from such infrastructure. Furthermore, during the year the problem of call-drops escalated which resulted in Telecom Authority of India (TRAI) coming up with a proposal to penalize the operators for call-drops forcing them to invest and improve the quality of service (QoS).
The operators in certain areas, however, are also facing the issue of lack of adequate spectrum leading to higher CapEx on deployment of network as they need more cell sites to improve their service quality. In addition, the sector continues to be one of the most competitive resulting in thin operating margins and volatile trends in realizations for the service providers as intense pressure and competitive pricing has resulted in volatile ARPUs. Although the ARPUs are growing on y-o-y basis, yet they are not having a stable growth curve.
However, on the brighter side, the guidelines on spectrum trading by the sector regulator are pushing the sector toward consolidation. This will not only help in optimum utilization of the resources including spectrum and tower infrastructure, but will also improve the QoS. Moreover, the impending entry of Reliance JIO will not only intensify the competition but also catalyze the mergers among smaller players, leading to consolidation in the sector. The recent merger of MTS into RCom and spectrum-buying agreements by Bharti Airtel from Videocon Telecommunications and Aircel are the examples of the same. The fiscal year 2017 is evidently going to be a challenging year for the telecom industry. Not only it faces the task to deal with the existing issues, it also has to heavily invest in building ecosystem for new technologies that are most likely to dominate the market.