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India telecom – Roadmap 2024

While Airtel and Jio successfully rolled out 5G services across India, VI faced hurdles in commencing its 5G services due to funding constraints. Consequently, the government acquired stake in VI instead of charging interest on deferred spectrum/AGR dues. VI’s sustainability and inadequate monetization of investments by telcos remain key challenges for the sector. The government’s accommodative stance is evidenced by the Telecom Bill 2023. We expect continued reforms with an emphasis on telecom–media convergence. The government is carrying out a consultation for regulating the broadcast sector including OTT players. With Airtel/Jio concluding pan-India 5G rollouts and encouraging usage with free unlimited trials, we expect increased focus on monetization. The Indian consumer remains pampered, consuming the highest amount of data globally, enjoying among the lowest data prices globally – this won’t change in 2024.

Divergent 5G strategies to onboard >100 million 5G users
After successful 5G auctions in Aug-22, Airtel/Jio are deploying 5G networks pan-India by Mar-24/Dec-23. While both followed different strategies, with Airtel choosing a non-standalone 5G (5G-NSA) architecture versus Jio’s standalone (5G-SA) network, there is no perceptible difference in applications/consumer offtake. On Sep 30, 2023, India’s 5G users were split in the ratio 60:40 across Jio:Airtel’s networks. Beyond enhanced mobile broadband (better 4G), advanced enterprise 5G applications like ultra-reliable and low-latency communications and massive machine-type communications are yet to see adoption. Both telcos are offering free unlimited 5G trials to consumers and are branding their services as 5G Plus (Airtel) and True 5G (Jio).

Telco–media convergence is where telcos are in agreement
Airtel and Jio are leveraging on pan-India 5G infrastructure by rolling out fixed wireless access (FWA), Air Fiber services. Through these services, telcos are hoping to expand the addressable market for home entertainment services, which is currently constrained by the availability of fixed line broadband (including FTTH) services (37 million connections: Sep’23). Airtel believes that there are 60 million homes with monthly income of >Rs 50,000/-, which can afford home entertainment services. With its FWA services, Jio has doubled its target and is now planning to reach 200 million homes through fiber/5G. Jio is also able to leverage on RIL’s strengths and presence across adjacent businesses like retail (Reliance Retail) and media (Viacom18). Despite the rise of connected TVs, we think that telcos will find cheap linear TV as the biggest bottleneck to adoption of FWA-based home entertainment solutions.

But tariff hikes seem to be the only monetization lever
A variety of visionary services expected, but there was a lack of killer service – SK Telecom in its 6G White Paper, discussing 5G lessons learnt (Aug’23)

5G came in with much hype, promising to be the first technology for enterprises. SK Telecom, the poster child of 5G services globally, recently wrote a white paper on 6G, detailing the lessons learnt from 5G. The Department of Telecom (DoT) also authored Bharat 6G Vision Statement in Mar’23. These attempts underscore that 5G was unable to live to its promise and could not enable telcos develop new monetization avenues globally. After two tariff hikes since 2019, Airtel/Jio kept pricing stable in 2023 and even offered free unlimited 5G trials, hoping to drive adoption of 5G/develop use cases. But the same was not forthcoming yet. Unlimited 5G data offers and already generous data allowances in tariff plans (>1 GB/day) are key roadblocks for Indian telcos in driving usage-based monetization unlike global telcos. Given the lack of global success of 5G monetization, we see no other monetization lever for telcos but tariff hikes.

Government’s reformist stance continues
After addressing the telecom industry’s immediate liquidity requirements in 2021, conducting a successful 5G auction in 2022, and rationalizing spectrum usage charge royalties, the government continued its reformist streak with the Telecom Bill 2023. Apart from several simplifying procedures for telcos that enable harmonization and surrender of spectrum, the bill introduces several provisions for user protection like consent-based receipt of advertising messages and measures to prevent SIM frauds and impersonation. The government is now carrying out consultation for regulating broadcast services. Apart from streamlining regulatory processes, the bill extends its purview to cover OTT services and introduces new provisions for emerging technologies.

Aatmanirbhar handset to Aatmanirbhar chips and networks
Telecom manufacturing has been a key success story of the government’s Production Linked Incentive (PLI) scheme) with 16 percent local value addition (Counterpoint estimates) in 2023 from 6 percent in 2016. The government is targeting multiple facets of the telecom and electronics supply chain through PLI schemes. The Ministry of Electronics and Information Technology (MeitY) is implementing Modified Electronics Manufacturing Clusters (EMC 2.0) scheme to provide support for creation of world-class infrastructure. The DoT has taken a bold step by getting BSNL to deploy a completely indigenous 4G and 5G service. After extensive testing, BSNL placed an order for 100k 4G sites (upgradable to 5G) with Tejas Networks/Tata Group, which has developed fully homegrown 4G/5G networks. This will get executed in 2024.

Industry structure remains a continued government challenge
While the government has been proactive in addressing the telecom industry’s concerns and developing a homegrown ecosystem, the fragile state of VI remains a challenge. VI owes ~Rs 2 tn to the government for spectrum/AGR dues. After the government’s four-year moratorium on spectrum/AGR dues ends in Sep’25, VI’s annual government payments are Rs 411 billion. This is almost equal to the company’s annual revenues. Unless the government defers spectrum/AGR payments from VI or the industry nearly doubles tariffs, VI’s sustainability will remain in question. With the government already being the largest shareholder of VI (33 percent), the former will lead to the government becoming VI’s majority shareholder. The government has tough choices in the next two years.

Telecom infrastructure faces collateral industry structure challenges
VI’s continued funding struggles and precarious financial position are hurting telecom infrastructure providers. VI has ~Rs100 billion tower rentals outstanding to Indus Towers, which has its parent, Vodafone PLC, as a dominant shareholder. Indus’ infrastructure utilization is dipping as VI is unable to expand its network in tandem with that of Airtel. Current telecom infrastructure players are unable to reap benefits of infrastructure sharing due to the industry’s unequal competitive position. In 2024, it is difficult to envisage major changes on this front.

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