India’s telecom sector was the poster boy for India ’s growth story over the last decade. In last four years, the sector grew by 20% CAGR and the mobile subscriber base crossed 900 million, second only to China. Telecom contributes approximately 3% to India’s GDP. More importantly Telecommunications, along with Information Technology, has provided the platform for acceleration of the economic and social growth of the country across all sectors. It has empowered the small entrepreneur, whether it be a carpenter or an electrician, as much as it has facilitated the growth of companies dependent on global e-Trade. The country is completely dependent on the instant voice and data communication provided by the telecom networks; this dependency is irreversible.
To propel Indian economy, the government is rightly using telecom industry as an effective channel to reach and serve the “common man’, particularly BPL families in villages. The National Telecom Policy (NTP) has targeted 100% tele-density and 600 million broadband connections by 2020, which includes connecting 250,000 Gram Panchayats by optical fibre network. This will translate into demand for an additional 400,000 base stations and 50,000 towers with average tenancy of 2.3 at an investment of Rs.50, 000 Crores. In effect, the NTP is visualizing doubling the current telecom capacity and increasing its reach to 95+% of India while providing broadband level of internet capability.
This growth opportunity should have acted as a magnet for significant FDI in the telecom sector. Instead, we have seen a perfect storm in telecom that has driven away investment. Unfortunately the confidence of investors in this industry is now at an all time low. This is evident from the decreasing FDI. In FY 09-10, telecom attracted USD 2.5bn FDI (10% of total FDI); however in the last seven months, Indian telecom received a meagre USD 48mn FDI (0.32% of total FDI).The industry has excellent future prospects, but can re-attract investors only if we can create stable long term policies and a conducive atmosphere for Government and industry to work as partners – not as adversaries.
The 2-G scam led the country into stormy waters with the abrupt cancellation of 122 telecom licences in 2012. Muddled attempts to resolve the crisis have left the industry even more troubled than before. All of this has generated an enormous amount of negative publicity and discouraged investors, both domestic and international. The Vodafone tax case has been dragging on since 2007. To worsen the situation, restrictive terms for the auction of spectrum from the cancelled licences, and unrealistically high reserve prices led to a failed auction as market forces were not allowed to determine the value of the spectrum. As a result, some key Circles like Delhi, Mumbai and Rajasthan had no bids. Several operators opted out of the business entirely, while others chose to limit their engagement. Further, the Government is pushing ahead with changes like one time licence fee for spectrum re-farming of the 900 MHz band well ahead of 2014 when incumbent operators need to renew their licences. The overwhelming majority of operators feel these changes are unnecessary and are being forced on an industry when it is still struggling to recover from the shocks created by the earlier Judicial/Government decisions. These policies will have significant cost implications for the industry which will inevitably be passed on to the consumer.
The tower infrastructure industry, which has fuelled Indian telecom growth by investing over Rs. 100,000 Cr in the last 15 years, faces a paradoxical situation. On one hand, the tower industry has been granted infrastructure status in recognition of the key role it plays in increasing telecom/ broadband coverage. On the other hand, the TRAI has proposed that tower companies that lease infrastructure to Telcos, and no services to the consumer, be forced to operate under the same Unified (services) Licence that mobile operators, long distance operators, and Internet Providers etc. need to serve their subscribers. Under the proposed unified licensing regime, additional licence fees of 8% will be imposed and the FDI limit be reduced from 100% to 74%. For an industry which is still struggling to meet its cost of capital, this retrospective tax on past investments may be the last straw that breaks the camel’s back making it unlikely that towercos will make further investments in rolling out of the 50,000 new towers needed.
In a similar vein, the DOT is promoting a vision of ‘green telecom’, which is a welcome initiative. However the targets set for Phase 1 alone, to convert 50% of urban and 30% of rural towers to renewable energy are unrealistic in the opinion of experts like TERI. To put this in perspective, this will require 1500 MW of solar power, which exceeds the total current domestic non captive solar capacity of the country to be generated on building rooftops and village sites with a Rs.40,000 Crore investment.
All of these proposed measures have serious financial repercussions for a Telecom industry that is already struggling for profitability. If we want the Telecom/Broadband growth to achieve the ambitious targets set in the Telecom & Broadband policies, we have to follow a different path.
It is essential that the Government puts in practice its often stated goals of getting voice coverage to every Indian, and broadband data down to every Panchayat. This is essential to enable not just cash transfers but e-Governance, e-Health and e-Education. This goal has to be used as an overriding criterion for approval of all telecom policies and practices. Telecom should no longer be viewed as a golden goose. In this context, the government should consider a series of concrete steps that are urgently required to recreate the positive sentiment in the market and to attract FDI:
· Ensure that ALL proposals include a cost/benefit analysis from the perspective of consumers, service providers, investors and the Government
· Draw up a 5 year roadmap for future spectrum availability and timing; conduct transparent auctions for these well before the deadline
· Auction all remaining spectrum with reserve prices set at 2001 plus inflation, let market forces determine the price; the number of competitors in Telecom and the deep feuds between them will ensure that collusion is unlikely
· Rethink the idea of spectrum re-farming; there is no precedent anywhere for migrating 400mn subscribers from one band to the other.
· Drop the proposal of forcing towercos (IP1s) to become Universal Service providers and leave them as Infrastructure companies. Provide USO funding for getting telecom infrastructure built in 20% of India that does not have coverage; make this a PPP with the Government’s NOFN (National Optical Fibre Network) backbone to get Broadband down to the village level
Stop treating Telecom as a cash cow and focus on what needs to be done to implement ubiquitous wireless broadband as contemplated in the ‘Broadband for All’ Policy
India can recover from the recent Telecom debacle, and once again become the leading Telecom market in the world. The “common man” deserves it and will demand this of the politicians, the bureaucrats and the telecom operators.
(The writer is EVP and President, Asia, ATC Tower Company of India Pvt. Ltd)