Telecom
Telecom
Adrienn

The telecom industry played a pivotal role in connecting people during the tough time of Covid-19 pandemic which also augmented the usage of digital services by subscribers. The new norm of work from home, virtual or online education, streaming of video applications, online games among others supported the data consumption to touch an all-time high of 12.2 GB in Q1FY21. Also, this has aided the broadband subscriber base to increase to 735 million as on October 2020 (y-o-y growth of 14.1%).

Even while data usage continues to support industry growth, the Average Revenue Per User (ARPU) level has been hurting industry operations despite price hikes (up to 40%) undertaken by incumbent telcos for its prepaid users in December 2019. The current ARPU level of about Rs.90 is much lower than the average ARPU of Rs.124 during FY16 when Reliance Jio had not entered the telecom market. With the current levels of industry ARPU, the telcos will find it difficult to make the Adjusted Gross Revenue (AGR) payments in 10 years timeline as advised by the Supreme Court (SC).

Also, the incumbents that are dealing with the issue of AGR payments are likely to move at a slow pace with their investment plans towards 5G with the current low ARPU level and the nascent ecosystem for 5G. Also, the reserve price suggested by TRAI for bands that could be used for deployment of 5G technology did not find much support from the industry due to its higher price. Apart from this, there are apprehensions that the government may ask private telcos to not consider China for procurement of telecom equipments to upgrade their networks. This will increase the procurement cost for them when they are already facing several challenges as discussed above. Moreover, intense competition and price war continues to affect industry’s performance.

Considering the challenges, the telecom industry looks forward for a cut in Spectrum Usage Charges (SUC) rate and license fee and refund of input tax credits in the upcoming budget. Also, the government aims to connect, propel and secure India with the help of digitization. Thus it is expected that the government will continue to allocate funds towards the development of telecom infrastructure in rural and remote areas which is expected to result in significant allotment of funds for Universal Service Obligation Fund (USOF) and Bharatnet project.

It is important to note that the incumbent telcos are in the process of spectrum refarming so as to upgrade the networks of their subscribers to 4G to increase their ARPU levels. Also, the telcos’ prime focus now is to improve the ARPU level which will be backed by growth in data consumption supported by increased use of online applications. Thus, the industry ARPU is expected to improve going ahead.

The author of the article is deputy manager, Industry Research with CARE Ratings Limited

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