We had 15 operators back in 1999 and 21 in 2009, and now, it is down to four
G Krishna Kumar, SEP 12 2021, 20:38 ISTUPDATED: SEP 13 2021, 01:33 ISTThe recent news of Vodafone Idea Limited’s (VIL)
near-bankruptcy situation has sent shockwaves across the telecom sector. VIL
accounts for the highest share of rural subscribers in the country. While the
overall telecom sector’s financial distress is well known, a significant player
like VIL's potential exit is not desirable. Should it exit, the mobile
operators' space would become a duopoly with Reliance Jio and Airtel, and the
PSU BSNL/MTNL being a fringe player. We had 15 operators back in 1999 and 21 in
2009, and now, it is down to four. Many large global telcos found it
challenging to play in the highly competitive Indian market and no wonder, all
of them wound up operations during the past decade. So, how many operators
would be ideal for India?
The Herfindahl-Hirschman Index, or HHI, is often
used to measure market concentration and is a metric used to determine market
competitiveness. An HHI < 1,500 is a highly competitive market while 1,500
to 2,500 is seen as moderately competitive and greater than 2,500 is a highly
concentrated market.
HHI trends in the Indian mobile telephony have always been below 1,500 until
2015. In 2018, the HHI moved to around 2,000 and now it is over 2,800. If VIL
exits the Indian market and the subscriber base is shared between Airtel and
Reliance, the HHI will be above 4,000. Globally, only China has an HHI of
4,400. China also is unique as all the three mobile operators in the country
are controlled by the government. Brazil has about 2,800; USA about 3,000.
India would need at least four-five players with relatively similar market
shares for a competitive setup that can spur innovation and help mobile
subscribers with a better user experience.
BSNL+VIL: A game-changer?
The VIL has debts close to Rs 1.8 lakh crores with 90% payable to the
government. The company is struggling with its operations with an ARPU (average
revenue per user) of Rs 107, the lowest when compared with the other two
private telcos who have an ARPU of Rs 140. While VIL and Jio have
similar spectrum holding, Jio has 60% more users per Mhz spectrum than VIL.
Increasing the tariff is not an option for VIL as more subscribers will port
out and worsen its operational parameters. As per a TRAI report, VIL has lost
42.8 lakh subscribers in June 2021. To stop predatory pricing by mobile operators,
VIL has been persuading the government to establish a floor price and provide a
level playing field. Like airline ticket prices, can the government create a
price range for telcos as well?
For the sake of Indian subscribers, direct and indirect employment generated by
VIL and more importantly, to emphasise India’s commitment to the telecom
sector, the government should bail out VIL. Can it acquire a controlling stake
in or merge with BSNL? But this needs to be done cautiously by setting clear
performance parameters. The deal construct should be directly linked to
improving subscriber experience parameters. When successive governments have
failed to improve BSNL/MTNL’s fortune for decades, can the government be
successful in reviving VIL? There are bound to be challenges including HR
aspects. However, a strong governance board with experts should oversee the
performance of the entity. Globally, there are several examples of government
intervention in the private sector yielding significant success to the overall
ecosystem. Can the VIL+BSNL become a game-changer and we have a strong
government-run mobile operator like China Mobile?
Satellites for broadband
While India has created an extremely competitive mobile telecom market, we will
need four-five operators for sustaining this competitiveness and innovation for
a healthy market. Although the entry barrier is high, we should encourage new
local companies or global players to provide services in the country.
The price per GB of data in India at $0.16 is the cheapest in the world and no
wonder, the average data usage has increased to over 15GB per month, among the
highest in the world. However, over 50 crore Indians are not using mobile data.
The government should open satellite communication services for improving data
coverage. The ultra wide band (UWB) spectrum in the Ku and Ka bands for
satellite communication can provide data rates of over 25Mpbs (although
theoretically, much higher data rates are possible). This would provide
internet access in the most remote areas.
Several global players like Amazon’s Project Kuiper, OneWeb (backed by Airtel),
Starlink from Elon Musk’s SpaceX and Canada’s Telesat are at various stages of
offering broadband data globally. The spectrum for UWB cannot be auctioned as these
are global frequencies. The Indian government should consider allocating
spectrum on an administrative basis, of course with appropriate fees and the
right checks. Satcom would help the digitally unconnected Indians to become
connected.
The government must fast-track the much-delayed 5G auctions. At the same time,
spectrum pricing must be handled carefully and unsold spectrum avoided. The
government must improve the fibre optic backbone in the country as this will
decide our ability to rapidly move into 5G technology.
The overall debt in the telecom sector means that telcos are unable to upgrade
their infrastructure. The government should lower the burden on them by
reducing taxes and regulatory levies. Presently, Indian telcos pay over 25%
(including GST, licence fees, etc) of their gross revenue as tax, compared to
less than 10% in other countries.
News reports indicate that the government is working on a relief package for
the telecom sector, triggered by the VIL issue. This could provide a breather for
VIL, but from a long-term perspective, we need a multi-pronged approach for
strengthening the telecom sector.
(The writer is an ICT professional and columnist based in Bengaluru)
