Sify_IoT_20181212
Sohag Sarkar
Principal,
Infosys Consulting

Digital Communications – The New Makeover

Making of the digital communications market

 India has quickly evolved into a converged digital communications market. It is the second largest telecom market with close to 1.2 billion subscribers and the third largest internet market which is nearing 500 million users. Digital disruption has changed the market dynamics and the way the Telcos operate today. This quicksilver digital transformation has made way for this new makeover. The telecom watchdog is all set to be re-christened as Digital Communications Regulatory Authority of India (DCRAI) while the Telecom Commission will be renamed as Digital Communications Commission (DCC). The National Telecom Policy (NTP 2012) would give way to the proposed National Digital Communications Policy (NDCP 2018) (Table 1).

Table 1: Digital Communications Performance Dashboard 2018

Market consolidation: an impact assessment

 A deeper introspection of the current market performance throws some good insights on the impact of consolidation being witnessed in the last few years. In the dominant wireless segment, there were 10 players (8 private and 2 PSUs) at the start of FY18-19; however, this count is expected to reduce to just five players (three private and two PSUs):

  • Vodafone and Idea merging their operations to give birth to the youngest and market leading telco: Vodafone Idea Ltd.
  • Reliance Communications exiting the B2C segment
  • Aircel closing down their operations
  • Telenor India’s acquisition by Airtel
  • Tata Teleservices and Tata Teleservices Maharashtra being acquired by Airtel (subject to regulatory approvals)

This consolidation has heavily tilted the subscriber and revenue market share (RMS) toward the incumbent trio (Airtel–Vodafone–Idea) and Reliance Jio. The new trio (Airtel–Vodafone Idea–Jio) now owns close to 80 percent of the subscriber base and approximately 88 percent of the gross revenue share (Table 2).

 Table 2: 2018 Revenue and Subscriber Market Share

Interestingly, Reliance Jio has put a significant jolt to the year-on-year RMS consolidation being achieved by the incumbent trios. The proportion of active subscribers has slightly improved from 84 percent in Mar’18 to 87 percent in July’18. A handsome 44 percent growth has been registered in the voice usage in FY17-18.

Source: TRAI Performance Report 2011–2016 (2016 Depicts Data as of March 2016).

Reliance Jio has continued to unsettle the sector by forcing its competitors to match its slew of free and low-cost packages. This is clearly evident in the growth of average data usage per subscriber: A whopping 580 percent increase in FY16-17 and another 144 percent in FY17-18 respectively. However, the significant increase in voice and data usage bears no positive uplift to the ARPU figures: There is a straight 42 percent drop in ARPU from INR 131 to INR 76. This signifies that the market has not arrested the promotion of ‘unlimited usage’ schemes; which is allowing below par revenue realization.

The interesting ‘phase-shift’ phenomenon has been the switching of the most valuable contributor toward the overall ARPU. Data revenue has toppled voice to come on the top with a practical swap in the percentage contribution figures (44 percent vs. 21 percent).

 Composition of ARPU

Source: TRAI Performance Report 2011–2016 (2016 Depicts Data as of March 2016).

The rising debt was the key trigger that propelled the consolidation in the market. It translated into higher financing costs, reduction in debt repayment abilities, and worsening interest coverage ratios. In FY16-17, the burgeoning debt burden of the major telcos increased by 19 percent; so much that it instigated the Reserve Bank of India to caution the commercial banks who were providing loans to this sector. The current debt stands around INR 7 lakh crore.

The tower business faced the cascading impact of consolidation with reduced average tenancy. This led to the merger of Bharti Infratel and Indus Towers thus creating the world’s second largest tower company.

Last but not the least, the biggest drawback of the consolidation has been the job cuts. The job losses in FY18-19 is expected to the tune of 80,000–90,0000; as against 40,000 in the last financial year.

Way forward

Will this new Digital makeover turn out to be the cornerstone of the hitherto Telecom market? And, what are the opportunities (or challenges) that lie ahead in this consolidated market:

 National Digital Communications Policy (NDCP 2018). The new policy is expected to deliver some ambitious targets in a time-bound manner under its three-pronged strategy framework:

  • Connect India. To realize the vision of broadband for all by enabling speeds of 50 Mbps. Providing 1 Gbps connectivity to all gram panchayats by 2020 and 10 Gbps by 2022. Enabling 100 Mbps broadband on-demand; provisioning public wi-fi hotspots (GramNet, NagarNet, and JanWiFi) to the tune of 5 million by 2020 and 10 million by 2022. Expand the Internet-of-Things (IoT) ecosystem to 5 billion connected devices and accelerating transition to Industry 4.0.
  • Propel India. To uplift the current GDP contribution by the sector from 6 percent to 8 percent. This can be done by attracting investments of at least USD 100 billion and jobs to the tune of 4 million in the next 5 years. This may be a conservative estimate when compared to the yearly spend of USD 70–80 billion per year by the numero uno telecom market (China).
  • Secure India. To enable a comprehensive data protection framework for secured digital communications that takes into consideration net-neutrality, network and physical infrastructure security within the digital ecosystem. This is required to ensure the success of Digital India, Digital Payment, and Smart City initiatives within the country.

Emerging technologies. Focus on 5G, artificial intelligence (robotics/machine learning), IoT/machine-to-machine (M2M), Cloud computing goes wider with the convergence of the digital market. 5G would require massive infrastructure and at least 1 lakh new towers with small cells. Licensed/unlicensed spectrum must be earmarked for IoT/M2M.

Telecom infrastructure. As proposed in NDCP 2018, a fiber first thrust is expected to improve the last mile connectivity by means of fiberization of the towers (currently, hovering around 20 percent; as against 75–80 percent in advanced telecom markets). Facilitating common service ducts and utility corridors in all new city and highway road projects would trigger the establishment of a shared National Digital Grid infrastructure.

Customer and digital acquisition. The recent Supreme Court judgement would impact the Aadhaar based e-KYC process. This is expected to increase the customer acquisition cost and prolong the quick activation cycle. Apparently, approx. 500 million subscribers have already linked the Aadhaar number with their mobile number; and over 80 percent of the new acquisitions are being facilitated using Aadhaar based e-verification process. The global smartphone giant, Apple, has already started manufacturing of smartphones in India; it is also expected to set up some iconic retail outlets in select cities in India. In wake of the market consolidation and Apple’s recent foray into dual-SIM based smartphones; it would be interesting to observe the consumer behavior when it comes to the second SIM phenomenon.

Innovation and new business models. The formal induction of the telecom sector within the overarching digital ecosystem or economy (including the much needed regulatory policies); thus opens new avenues for growth and innovation-driven business models. Having conquered the pinnacle of the B2C growth trajectory; only time would tell if the next growth wave would be witnessed within the B2B segment.

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