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Intelligence Brief: Assessing the impact of Indian market reform

The announcement of a series of reforms [1] for the Indian telecom sector represents a game-changer for both the digital and wider economy.

While the growth of mobile broadband in India has been an incredible success story, with 4G networks available to almost the entire population and consumers paying some of the lowest prices for mobile services in the world, a combination of low ARPUs and high regulatory costs threatened the financial sustainability of the sector. This would ultimately be to the detriment of Indian consumers.

It is not an exaggeration to say the reforms are a lifeline, as many have argued. But the impacts could be far more reaching, by enabling operators to make the investments needed to upgrade networks and rollout the 5G services which could form the lifeblood of India’s digital ecosystem.

How so? A moratorium on statutory dues and rationalisation of bank guarantees provide a vital short-term boost to liquidity that the sector currently needs, especially Vodafone Idea.

But looking further ahead, these measures combined with the revised definition of adjusted gross revenue (AGR) and removal of usage charges on future spectrum acquisitions, will provide operators with improved means to invest in their networks. The extension of spectrum licences from 20 years to 30 years will also allow operators to plan for long-term investments and business strategies. This is especially important for 5G, which will require more intense investments than previous generations. Meanwhile, the removal of the additional charge for spectrum sharing, along with operators being permitted to surrender spectrum after ten years, should promote more efficient use of spectrum.

Furthermore, while the structural reforms have received most attention, the procedural reforms which were also announced should not be overlooked, particularly know your customer (KYC) changes which will permit online self-KYC. This will significantly reduce subscriber acquisition costs and make it easier for consumers to get a new mobile connection. These processes could potentially allow more lower-income and rural populations to get online, helping to close the country’s digital divide.

It is therefore not surprising the response to the reforms has been overwhelmingly positive, across all operators. As quoted in local media:

Sunil Bharti Mittal, chairman of Bharti Enterprises: “We congratulate and thank the government, who under the decisive leadership of the Honourable Prime Minister Shri Narendra Modi, has undertaken these seminal reforms to lift an industry that’s at the core of his Digital India vision. The latest reforms ensure that the industry is able to invest fearlessly and support India’s digital ambitions.”
Gopal Vittal, MD and CEO of Bharti Airtel (India and South Asia): “These fresh reforms will further boost our efforts to invest in this exciting digital future and enable us to be one of the leading players in India’s digital economy.”
Mukesh D Ambani, Chairman of Reliance Industries: “Telecom sector is one the prime movers of the economy and the key enabler for making India a Digital Society, I welcome the Government of India’s announcement of reforms and relief measures that will enable the industry to achieve the goals of Digital India. I thank Honourable Prime Minister for this bold initiative.”
Nick Read, CEO of Vodafone Group: “We commend the resolve shown by the Government of India, under PM Modi’s leadership, to find a comprehensive solution that would support a competitive and sustainable telecom sector in India. Although the sector has struggled for many years, we expect that the government’s constructive initiative announced today, along with the continued strong support of the telecom minister and finance minister, will be the beginning of a new era for India’s digital ambitions and for Vodafone Idea’s continued contribution to creating an inclusive and sustainable digital society to the benefit of all citizens.”

What next?
While the operators are right to be positive on the reforms, it’s also true that more needs to be done.

The reforms are a critical first step in helping the country to meet the Digital India vision. Now, it is important the government builds on them to ensure the long-term sustainability of the sector. This will enable 5G to play a central role in India’s effort to become a $5 trillion economy.

A key area for further reform is spectrum policy [2]. Despite India’s large geography and population, operators have less spectrum than in most other countries. Yet when taking revenues into account, they have paid almost nine-times more per unit over the past ten years. Therefore, in the short-term, a key priority is for the government to release sufficient amounts of 5G spectrum in the next auction, now expected in early 2022 [3], at modest reserve prices. The market is getting ready, with many Indian consumers already owning a 5G device and all of the main operators having started network trials [4]. An enabling spectrum framework could accelerate the rollout and adoption of 5G in metro and rural areas.

In the longer-term, it is important that a full spectrum roadmap is developed, detailing what will be available when.

This will help operators to better-plan their investments. In particular, given the capacity requirements of 5G and expected demand by Indian consumers, the government will need to release around 2GHz of mid-band spectrum for 5G, in addition to mmWave spectrum [5]. Not only will this improve network quality and allow all consumers to access 5G, but it will also reduce the need for cell site densification. This will enable more efficient and environmentally-sustainable network deployment, helping operators to reduce their carbon footprint and meet their emissions targets.

Operators in India are already moving forward on ambitious green strategies [6], but support for those agendas is important given the critical importance of addressing climate change.

– Kalvin Bahia – principal economist, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.


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