India moves to telecom duopoly with onset of 5G and higher costs

With Prime Minister Narendra Modi launching the 5G network in India on October 1, India’s shift to duopoly in telecom services has also begun in earnest. After witnessing fierce  competition between telecom service companies — national and international —  to capture the now 114 crore subscriber base of India (TRAI July) over three decades, the various omissions and commissions in telecom policies have ended up whittling down competition in the telecom sector, leading to market expansion at low cost. 

The original aim of the 1991 New Telecom Policy, launched as part of the nation’s economic reforms, was to increase teledensity at affordable prices, from 1 per cent of the population to the extent possible.

After 30 years of policy initiatives to achieve more than desirable teledensity for the country, the move from multiple operators to duopoly is seen as almost like a return to the monopoly of the Department of Telecom (DoT), which stifled Indian telecom services till private players were let in. Monopoly meant high cost and scarce availability of telecom services, which were mostly voice services till 1991. Today, voice is no longer the need; what matters is data, with 5G services to internet-enable all devices.

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Though Vodafone-Idea and public sector BSNL-MTNL are still in service with considerable market share, they are plagued too hard by serious financial issues to fund any major network work expansion, let alone launch 5G services. This might see them edged out from the field slowly unless the government gives them substantial policy and financial incentives.

The leader and the stragglers

BSNL is still launching 4G services. Vodafone-Idea, being part of a global brand, is struggling to put the house in order to launch 5G in the near future. Interestingly, the market is now dominated by Reliance Jio,  a newcomer launched in 2016, compared to the much older Airtel or Vodafone-Idea or BSNL and MTNL. Of India’s  114-crore subscriber base, RJio has 36 per cent, Airtel 32 per cent, Vodafone-Idea 22 per cent and BSNL-MTNL a  mere 10 per cent. 

With the launch of 5G services, Jio, which has an upper hand in attracting data users with its cheaper and easily available 5G services, is expected to expand hugely, with IoT (internet of things) needing connectivity with all electronic and even mechanical devices. This might lead to Jio expanding its subscriber base, though analysts say the higher end of the customers still prefer  Airtel due to its brand positioning and credibility for years of service.

However, Jio has created a new basket of subscribers who are increasingly using telecom data to devour OTT platforms, TikTok and the like, giving Jio a premier slot among ‘common’ telecom users. In fact, Jio has created an array of independent content bases for such users in each Indian language  to pep up its user base. From film gossip to hip-shaking housewives to comedy shows, Reels with stars and ‘crazy’ videos, data consumption of the subscriber is zooming, giving competition a run for its money.

Multi-player to duopoly

How India’s telecom sector moved from multiple players to duopoly in the last 10 years is a study in itself. Whatever be the merits of the 2G scam in the UPA-2 regime, it did one good thing for the sector. The policies brought down telecom tariffs by increasing the number of telecom service players and unleashing fierce competition in the market. It also gave a big boost to teledensity, with a sharp increase in telecom subscriber base from 40 crores to the current 114 crores. All these were achieved through low-priced telecom gear from Chinese companies and cheaper handsets, again of Chinese origin.

India’s urban teledensity stands at 125 per cent, with most people having more than one SIM card for their increasing telecom service usage. For a country with 1 per cent teledensity 30 years ago, it is indeed a huge success of policies of the sector. India’s subscriber base now stands next to China, which is topping the chart in subscriber base as well as population.

Despite the ongoing market development, the constant interference of the government and the courts in the sector has led to the duopoly situation in the telecom sector now.

From allotment to auction

The first major intervention was by the courts, with a diktat for spectrum allocation through auction. Spectrum being a scarce resource, private telecom players with licence were earlier allotted spectrum and levied a user charge. There was also a revenue share arrangement as part of the licence fee.

With one judgment, the Supreme Court altered the rules of the game, asking for auction of spectrum, making the sector an arena for rich companies. This wiped out all the middle and small players such as Aircel, MTS, Tata Telecom and even (Anil Ambani-owned) Reliance Telecom. The 4G spectrum auctions in 2015 enriched the government coffers by $11 billion, but it saw small and medium companies withdraw from the market.

The next big onslaught was a government-initiated tussle with private telecom companies on definition of revenues from the telecom sector and basis of the revenue share with the licensor, the government. The Cellular Operators Association of India (COAI) moved the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), challenging the definition of adjusted gross revenue (AGR), leading to a prolonged legal battle that ended up  in the Supreme Court. While the government said that AGR includes all revenues (prior discounts) from both telecom and non-telecom services, the companies argued that AGR should only comprise the revenue from core telecom services.

The issue was settled by the Supreme court in favour of the government and the industry was asked to pay arrears of ₹1.56 lakh-crore in 10 years. Combined with these financial strikes was the ban on low-priced Chinese telecom gear by the Centre after border issues with China in 2020. Now, no telecom company can source Chinese equipment for 5G. BSNL, which was heavily dependent on the cheaper Chinese gear  for 4G launch, is yet to finalise its plans while others have gone back to costlier European and Korean gear manufacturers for their 5G equipment. BSNL announced it is negotiating with TCS for its 4G gear.

Struggling companies

Vodafone-Idea is struggling to pay its AGR arrears and has asked the government for an equity swap. Airtel is looking to address it. The Tatas and Reliance Telecom and others have either filed for bankruptcy or are paying instalments to come out of the financial mess they are in.

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Thus, when the country enters the 5G arena, it is left with a duopoly in the market —  comprising Reliance Jio and Airtel. They are the only players who seem capable of attracting customers of this high-end technology. Since they are dependent on not-so-low-priced 5G gear, it is anyone’s guess that the cost of telecom services — which were the lowest in the world 10 years ago — will get  on par with global telecom tariffs.

Clearly, the winner here is the government, the licensor of telecom companies, and the companies themselves. The loser definitely is the end customer who has to pay a higher price for telecom services for no fault of his/hers, but that of various policy tangles over the years.

(VK Cherian is a senior media professional writing on telecom. He has also held senior positions in MTS and COAI over the past 30 years.)

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