Context

The board of Vodafone Idea (Vi) has approved the conversion of part of their liability owed to the government into equity. Thus, roughly Rs 16,000 crore of the interest on the deferred spectrum and adjusted gross revenue (AGR) liabilities will now be converted to government equity, making it the single-largest stakeholder, owning 35.8 percent of the entity.

Background

• Telecom sector has become an increasingly important basic industry, which bodes well for its future prospects and continued growth. 
• The continuing advances in high-speed mobile services and Internet connectivity between devices keep driving innovation and competition within the sector. 
• It can play an important role in the growth of India.

Analysis

Evolution of Telecom Sector in India

• Indian telecom sector is more than 165 years old.
• Telecommunications was first introduced in India in 1851 when the first operational land lines were laid by the government near Kolkata (then Calcutta), although telephone services were formally introduced in India much later in 1881.
• The Indian telecom sector was entirely under government ownership until 1984, when the private sector was allowed in telecommunication equipment manufacturing only.
• The actual evolution of the industry started after the Government separated the Department of Post and Telegraph in 1985 by setting up the Department of Posts and the Department of Telecommunications (DoT).
• India is currently the world’s second-largest telecommunications market and has registered strong growth in the past decade and half  with a subscriber base of 1.20 billion
• The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector where key policies are enhancing the use of internet in various sector leading to growth of telecom sector, like:
• National optical fibre mission
• National digital communication policy 2018
• PM-WANI scheme 

FDI IN TELECOM SECTOR

• In October 2021, the government notified 100% foreign direct investment (FDI) via the automatic route from the previous 49% in the telecommunications sector. 
• FDI of up to 100% is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail. 
• The deregulation of FDI norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.
• The Telecom sector is the 3rd largest sector in terms of FDI inflows, contributing 7.1% of total FDI inflow in India.

The telecom sector lies within the sector of information and communication technology is made up of all telecommunications/telephone companies and internet service providers and plays the crucial role in the evolution of mobile communications and the information society.

Why is there a need to strengthen the telecom sector in India?

• EMPLOYMENT CREATION: The sector contributes 2.2 million direct employment and 1.8 Million indirect employment jobs.
• GDP GROWTH: The sector is expected to contribute 8% to India’s GDP in 2022 from ~6.5% currently. 
• EDUCATION: COVID-19 lockdown has further kicked off the dependence on internet for education and was able to reach far ends to connect digitally and provide education.
• PAYMENT SYSTEM: The sector has seen exponential growth in terms of digital payment system through UPI, online net banking etc. which has further ignited the growth of telecom sector in India by making Internet Infrastructure self-reliant, robust and secure.
• E GOVERNANCE: This sector plays an important part in government E Governance initiative that encapsulate the finer points of Governance, such as citizen centricity, service orientation and transparency
• EASE OF LIVING: This sector will play an enhanced role in easing people life with various up-surging technologies such as IoT, AI etc.
• ELECTRONIC & MOBILE MANUFACTURING: With strengthening of telecom sector the need of electronic devices, mobiles and other data based appliances have a huge demand further boosting up this industry growth.
• TELEMEDICINE: Telemedicine has played an important role in providing health based services during Covid-19 which requires further strengthening of the telecom sector.
• MANUFACTURING SECTOR: Various newer technologies in the manufacturing sector need a higher and better data service for development of the manufacturing sector.
• SERVICE SECTOR: Service sector being one of the prime driven sectors for employment creation, telecom sector can further assure its development in India.

 What are the challenges faced by the sector?

• Poor Financial Health of the Sector: Gross revenue has dropped drastically in this sector having a sound number of NPAs and lack of funds for the development though the recent SC judgment has paved a way towards its development.
• Limited Spectrum Availability: Available spectrum is less and the delay in spectrum allocation for 5g technology has delayed the development of this sector. Hence, it is imperative that spectrum auctioning at sustainable prices is the need of the hour. 
• Higher cost of Spectrum auction: Government auction spectrum at an exorbitant cost which makes it difficult for mobile operators to provide services at reasonable speeds.
• High competition and tariff war: Post entry of Reliance Jio competition between different telecom sectors has further ignited. Other telecom players have to drop tariff rates both for voice and data. This has decreased their net profit and led to a financial crunch which delayed further investment.
• Lack of Telecom Infrastructure in Semi-rural and Rural areas: Service providers have to incur huge initial fixed costs to enter semi-rural and rural areas because of lack of infrastructure, issues with power supply etc..
• Government policies against this sector: Due to the non-conducive environment resulting from government policies and regulations, roll out of data-based products and services are hampering the progress of telecom sectors. 
• Low Broadband Penetration: Low broadband penetration in the country is a matter of concern and the government needs to do a lot more work in the field to go up in the global ladder.
• Newer technologies decrease the revenue: Various applications such as WhatsApp, OLA, Uber etc. do not need permission or sign a pact with a telecommunications company which leads to decrease in revenue of the telecom sector.
• License fee: The license fee of eight per cent of the Adjusted Gross Revenue including five per cent as Universal Service Levy (USL) is one of the highest in the world.

WAY FORWARD

• INVESTMENT: The number of internet subscribers in the country is expected to double to 829 million and overall IP traffic is expected to grow four-fold at a CAGR of 30%  there is need of further investment for growth of this sector
• Lower License fee: The license fee of eight per cent of the Adjusted Gross Revenue including five per cent as Universal Service Levy (USL) is one of the highest in the world.
• R&D: The government should spend large on R&D and create an environment that makes India capable of manufacturing and even exporting hardware components like mobile handsets, CCTV Cameras, touch screen monitors etc.
• National Optical Fibre Mission:- The government should increase the network area through optical fibre instead of copper which is expensive. This is necessary to ensure last mile connectivity
• Reduce price for spectrum auction: In the past, some of the operators participated recklessly in these auctions leading to exaggerated prices which was much higher. Reduce spectrum auction rates can help in further investment in this sector.
• Infrastructure Sharing: Government policies should be amicable in nature which should provide the use of government infrastructure at minimal prices which could help this sector to penetrate in far end areas..
• Better tariff pricing mechanism: TRAI should fix a minimum price to save the industry from price war and create a healthy competition with different service providers.
• EASE OF DOING BUSINESS: The government should prepare a ground for easy right-of-way permissions and lower cost of right-of-ways to enhance ease of doing business in this sector.
• ROLL OUT OF NEWER TECHNOLOGY: It is estimated that 5G technology will contribute approximately $450 billion to the Indian Economy in the period of 2023-2040.Currently, 5G Spectrum Trials are being conducted in India to ensure proliferation of 5G technology across the country. Faster role out of new technologies can help in growth of this sector.