Dell_20181213

Jaspreet Singh
Partner – Cyber Security, Africa, India & Middle East (AIM) , Advisory Services
E&Y

Telecommunications Equipment Industry Moving Toward An Era Of Digital Connectivity

Over the past few years, telecom sector has been facing immense financial distress and strained margins due to hyper competition and discounted business model.  However, with the recent consolidation of the telecom sector, the large players have started focusing on delivering better value to the end subscribers and betting higher on enterprise solutions.

Telecom equipment and devices are the key enabler for overall telecom market. Indian telecom equipment sector has witnessed radical transformation in past couple of years. The government has been a pivotal force behind India’s digital makeover. A series of pro-growth reforms and progressive policies laid the right foundation for growth. The Government of India has enabled easy market access to equipment manufacturers and a fair and proactive regulatory framework that has ensured availability of telecom services to consumers at affordable prices. India is emerging as a key destination for telcos and device manufacturers due to multiple policy level changes and initiatives like National Digital Communications Policy 2018 which aimed at maximising India’s contribution to global value chains, by focussing on domestic production, increasing exports, reducing the import burden, and promoting local manufacturing and development.

Telecom Regulatory Authority of India (TRAI) also calls for zero telecom equipment import by 2022, by the setting up of a `1000 crore fund for endorsing research and innovation in the sector by promoting research, innovation, standardisation, design, testing, certification, and manufacturing telecom equipment. This will be pivotal in transitioning India from an import-dependent sector to a global hub of indigenous manufacturing. Further, the government has increased Basic Customs Duty (BCD) rate on mobile phones to 20 percent to boost domestic manufacturing and encourage innovation among local manufacturers. With an objective to encourage local value addition, the government has also increased BCD on batteries, charger’s headphones etc. from 10—15 percent.  The Electronics Sector Skills Council of India (ESSCI) was set up to develop a sector skill development plan. This will enhance and boost the overall skills needed in the Indian telecom sector.

Other government initiatives such as Modified Special Incentive Package Scheme (M-SIPS) for 20—25 percent capital subsidy, establishment of electronic manufacturing clusters aimed at development of infrastructure, amenities, and other common facilities and Merchandise Exports from India Scheme (MEIS) benefit of 4 percent (from Nov 2017) payable as percentage of realized FOB value (in free foreign exchange) as an incentive for making exports, are going to have a positive impact on the telecom equipment market.

Consumer and business demand for internet bandwidth is expanding. To cater to this increasing demand, large telcos are working to satisfy heightened capacity requirements by building capabilities that offer quick upload and download speeds. Rural optical fiber network rollout by the government which is targeted to close in 2019 will further add to the telecom infrastructure and enable the upliftment the industry as a whole in the coming year. Thus, the rural market would be a key growth driver in the coming years.

4G is rolled out by many operators across India on massive scale and 5G is expected to release in next couple of years. Multiple testing and standardization initiatives are taken by telcos, OEMs, and other key stakeholders. 5G has the potential to become a critical promoter in adoption of technologies like Internet-of-Things (IoT), artificial intelligence, and machine learning by industries. Thus, innovation in technology will further expand the market size of telecom equipment manufacturers.

The government is conscious of the fact that telecom is indeed the economic backbone, critical to the success of Digital India and have drafted policies accordingly in the last few years. It is time that the industry- government interactions and collaborations accelerate their pace so that the goals set by the government are accomplished in the coming year.

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