Cannot have low tariffs and more telecom innovation

Telecommunications are the backbone of the digital economy. It is our collective responsibility to create an enabling environment for all stakeholders.

India thrives on its digital strength. The country has seen massive growth in data consumption, indicating a shift from a “digital first” to “all digital” lifestyle. To give a perspective on the data wave in India, the use of quarterly data (at ~ 27.8 exabytes, or EB, as of March 2021) is almost 60 times greater than the June 2016 quarter. 4G data share stood at 97% (27.1 EB) in March 2021, up from ~ 2% (8 PB) in June 2016, recording strong growth of ~ 3,365x. Data usage per subscriber fell from a measly 0.15 GB / month in June 2016 to around 12.3 GB / month in March 2021.

With the advent of 4G, various digital / tech businesses such as e-commerce, food delivery, ridesharing, streaming services and fintech etc. have proliferated in India. However, the sector’s service revenues declined at a CAGR of 4.6% between 2016-2020. This is the industry’s biggest anomaly: mobile data traffic is targeting the moon, while revenue is not growing proportionately. This is largely due to the fact that India has one of the lowest mobile data rates in the world. The price of 1 GB of data is $ 0.1 in India, compared to $ 0.3 in Indonesia, $ 0.3 in Bangladesh, $ 0.6 in the Philippines, $ 0.6 in Malaysia, $ 0.8 in China, $ 1.6 in Brazil, $ 2.7 in the UK, and $ 3.8 in the US. This has a direct bearing on mobile ARPU, which is significantly lower at $ 1.8 compared to a global average of $ 7.5.

Today, the telecommunications sector is faced with an increase in the cost of inputs. Average gasoline and diesel prices in October 2021 in Delhi were 43.5% and 41.5% higher than their respective levels in October 2019. Day by day, labor costs are also increasing. But, since the launch of mobile services in India in 1995, tariffs have only gone south. Overall tariffs have only increased twice over the past 25 years: December 2019 and November 2021. In every industry, having a fair price for the service offered by companies is essential in order to maintain health financial sector. It’s no surprise that India’s telecommunications sector has one of the lowest returns on invested capital (ROIC) in Asia. The sector had a ROIC of 0.9% in 2020, compared to an average of 8.6% in telecommunications markets in Asia. Without proper investment, the industry would not return to its glory days.

It is high time that the necessary corrections / measures were needed to make the industry more attractive and profitable. A viable cost structure is necessary for innovation to flourish and penetrate into adjacent market proposals. To put it simply, the current mobile tariff in India is not sustainable. The ARPU must be at least doubled over the next two years to restore the viability of the sector. We have reached a point where higher tariffs are no longer a choice but an inevitability.

Continued investments are needed for the expansion of the 4G network as well as for the increase of existing sites. It is important for Indian operators to stay at the forefront of technological innovation. Today, India is at the dawn of a technological revolution. The country is in transition to become an innovation partner for the world. This is possible through large-scale digital transformation initiatives, the creation of smart platforms and products, and the adoption of emerging technologies such as analytics and artificial intelligence (AI), robotics and automation, blockchain, IoT, advanced computing and AR / VR. 5G is expected to be a catalyst to bring all new technologies together and propel India on the path of high tech innovation.

Telecom operators can no longer delay investments in the 5G network. Otherwise, the country runs the risk of falling behind its global peers on the innovation agenda. For a successful implementation of 5G, operators must significantly increase investments, form strategic partnerships with leading players in other industries and imbibe a culture of innovation to occupy new positions. in the value chain. The advent of 5G will create several job opportunities, open up new sources of income and maximize India’s contribution to the global value chain by focusing on domestic production and increasing exports.

Consider the fact that in India the prices of basic necessities are on the rise. According to data released by the Central Statistics Organization, the average consumer food price inflation rate for fiscal year 21 (April 2020 to March 2021) was 7.7%, an increase of 1 percentage point from FY20. This is largely due to higher input costs, due to supply disruptions and global inflation. Another example would be real estate prices. According to the Confederation of Indian Associations of Real Estate Developers (CREDAI), residential property prices are expected to increase by 10-15% due to rising input costs.

The electricity and utilities sector has seen periodic upward tariff revisions to minimize losses to utility companies. The national average cost of purchasing electricity (APPC) has steadily increased, from Rs 3.4 / Kwh in fiscal year 17 to Rs 3.85 / Kwh in fiscal year 22, an increase by 13.2%. To top it off, India’s headline CPI inflation was at a six-year high of 6.2% in 2020-2021 and remained high at 5.2% over the seven-month period. from April to October 2021. We must ask ourselves how are the tariffs of telecommunications. in a different direction from that of inflationary trends.

Given the importance of telecommunications, the current pricing structure in the sector is not conducive to substantial returns for operators. It runs the risk of excluding key players in the telecoms value chain. At the expense of reduced tariffs, we cannot afford this imbalance. Ultimately, if the sector is not attractive, then no global investment is possible. A phased action plan needs to be formulated to attract more capital and improve long-term sustainability.

India may be at a point where the whole tariff structure should be rethought. Perhaps this is a way to balance increasing overall tariffs with a segmented and phased approach. Telecommunications are the backbone of the digital economy. It is our collective responsibility to create an enabling environment for all stakeholders.

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