Telecom Sector of India and its issues

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  • India is the world's second-largest telecommunications market, with around 1,186.63 million telephone subscriber bases at the end of June 2019.
  • The telecom market can be split into three segments – wireless, wireline and internet services.
  • The wireless market segment comprises of 98.2 percent of the total subscriber base.
  • Rural subscribers form 42.9 percent of total telephone subscribers
  • India is also the second-largest country in terms of internet subscribers.


  • India holds the world’s highest data usage per smartphone at an average of 9.8 GB per month. It is expected to double to 18 GB by 2024.
  • The number of internet subscribers in the country increased at a CAGR of 41.58 percent during FY06-FY18 to reach 636.73 million in 2018-19.

  • India became the world’s fastest-growing market for mobile applications and remained as the world’s fastest-growing market for Google Play downloads
  • The internet user base in India has crossed 500 million and is likely to reach 627 million by the end of 2019.
  • Total wireless data usage in India grew 119 percent year-on-year to 1,58,50,560 terabytes.
  • Gross revenue of the telecom sector stood at Rs 2,37,416.6 crore (US$ 33.97 billion) in 2018-19.
  • Strong policy support from the government has been crucial to the sector’s development. Foreign Direct Investment (FDI) cap in the telecom sector has been increased to 100 percent from 74 percent.
  • FDI inflows into the telecom sector from April 2000 – March 2019 totaled to Rs 2.29 lakh crore (US$ 32.82 billion).

Following is the Infographic depicting Telecommunications in the process:


Spectrum Auction:

  • Energy travels in the form of waves known as electromagnetic waves.
  • These waves differ from each other in terms of frequencies. This whole range of frequencies is called the spectrum.
  • In telecommunication like TV, radio, and GPRS, radio waves of different wavelengths are used.
  • They are divided into bands based on frequencies.
  • Mobile phones use two technologies based on different parts of the radio spectrum— GSM (global system for mobile communications) and CDMA (code division multiple access).
  • Most of the radio spectrum is reserved in countries for defense.
  • The rest is available for public use. But following an increase in the number of phone users and new services, countries started auctioning the frequencies to telecom companies.

 A spectrum auction is a process whereby a government uses an auction system to sell the rights (licenses) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Spectrum auctions are a step toward market-based spectrum management and privatization of public airwaves and are a way for governments to allocate scarce resources. 

In India, the Department of Telecommunications (DoT) conducts auctions of licenses for electromagnetic spectrum. India was among the early adopters of spectrum auctions beginning auctions in 1994.

The inappropriate spectrum on first cum first bases lead to the 2G scam in India which is explained below:

In this regard, it is important to discuss the role of TRAI.

The Telecom Regulatory Authority of India (TRAI) was set up in order to have a suitable environment for the growth of the telecommunications industry in the country and be a part of the global information society. It is a statutory body and regulates the telecommunications sector in the country.

TRAI Structure

TRAI shall have, in addition to its chairman, at least two and at the most six members, all appointed by the Central Government.

The members should have special knowledge of, or professional experience in telecom, industry, finance, accountancy, law, management, and consumer affairs.

Only those senior or retired Government officers can be appointed as members who have served for at least three years as secretary/additional secretary to the Union or State Governments.

Powers and Functions of TRAI

The Powers and Functions of TRAI are mainly:

  • To recommend the need for and timing of introduction of new service providers and terms and conditions of the license to a service provider;
  • To ensure technical compatibility and inter-connect between different service providers and regulate their revenue-sharing arrangements;
  • To ensure compliance with terms of license and revaluation of the same for non-compliance;
  • To lay down and ensure a time period for providing long-distance and local distance circuits;
  • To facilitate competition and promote efficiency in operations to promote the growth of telecom services;
  • To protect consumers’ interest, monitor quality of services, inspect equipment used in networks and make recommendations about such equipment;
  • To maintain a register of interconnect agreements and keep it open for inspection and to settle disputes among the service providers in this respect;
  • To give advice to the government on any matter related to the telecom industry. Levy fees and charges for services and, ensure that universal service obligations are complied with.

Strengths of the Telecom Sector in India

  • Strong demand: World’s second-largest in terms of telecom network (a subscriber base of 119.1 crores), internet subscribers (internet users of 51.2 crores) as well as app downloads
  • it is estimated by the current demand that the telecom sector will likely have an economic value of $217 billion by 2020.
  • Increasing data usage: India is also one of the largest data consumers (an average of 1 GB data per day per user) globally. Data prices in India have historically been lower than global benchmarks, given the sheer number of service providers. The entry of Jio has only made competition fiercer, forcing telecom companies to bring down tariffs.
  • Good telecom infrastructure: Large telecom companies have been investing in network infrastructure to improve the customer experience for the last few years. Over the past couple of years, the Indian telecom industry has been going through a paradigm shift from a voice-centric market to a data-centric market.
  • Fast-tracked reforms provide room for growth: National digital communications policy, 2018 aims to attract $100 billion worth of investments in the sector by 2022 and it is both customer-focused and application-driven, given the pace of global transformation in the sector, particularly, in emerging technologies such as 5G, IoT (internet of things) and M2M (machine to machine) communications.


  • Interconnection charges: Interconnection charges will be zero effective Jan 1, 2020, from the current rate of 6 paise/min. This would impact the revenues of incumbents.
  • Spectrum auctions: The government of India has kept a high reserve price for spectrum auction. Given the ongoing pressure on ARPU and margins, purchasing the spectrum at a high price (in circles like Mumbai) puts further stress on the balance sheet.
  • External Sources: There is a potential threat by the induction of Chinese Telecom Equipment or from any other source. So far, no specific issue has arisen due to equipment originating from any specific country. However, as and when any specific issue arises or a report is received, the regime can be further tightened for the equipment coming from a specific country or source or group of countries or companies.

Key Challenges Faced by the Telecom Industry in India

Inefficiency in Technology

  • The mobile operators need a spectrum to provide access to enhance performance but it is a scarce resource. As compared to other countries, in India, the amount of spectrum available for commercial use is quite low.
  • The practice of the government to auction spectrum at an exorbitant cost makes it difficult for mobile operators to provide services at a lower price and at reasonable speeds. This discourages adoption and usage. However, the launch of Jio has helped to some extent to overcome this challenge. But there is a long way to go.

 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. Key reasons behind these costs are lack of basic infrastructures like power and roads, resulting in delays in rolling out the infrastructure. Lack of trained personnel to operate and maintain the cellular infrastructure is another challenge.

Lack of automation

  • Sales teams in the telecom industry in India continue to rely on largely manual processes to collect intelligence on prospects. This process needs automation since it’ll provide intelligence in real-time.
  • Without this information, teams may expand sales and resources in competitive markets where termination would not be effective, locations where serviceability is not aligned, or may not participate in the market until it is too late.

Lack of fixed-line penetration

  • India has very little penetration of fixed-line in its network whereas, most of the developed countries have a very high penetration of fixed lines (telephone line that traveled through a metal wire or optical fiber as part of a nationwide telephone network).
  • Though India has almost 1.2 billion connections the fixed line is around 18 million. Broadband Connectivity on fixed-line is also poor.
  • Only around 25% of Towers in India are connected with fiber networks, whereas in developed nations, it is in excess of 70%.
  • 5G Network requires towers to be connected to very high-speed systems. Those high speeds are not possible on the present radio systems. But are possible on the fiber system.

Current System of Tariffs

  • Major telecom operators are reporting losses and financial stress. This shows that the current tariff system is not financially viable for telecoms.

Content constraints

  • Today, mostly the content that is available on the Internet is in English, which is still spoken by a small fraction of the people in India. There is a need to make more and more content available in all the regional languages. Additionally, the content should be focused on addressing local problems.
  • The experience of using the internet or browsing is not a pleasant one on the small screens of a mobile phone. So, mostly the usage is restricted to chatting on applications such as WhatsApp and playing games. However, reading documents on mobile phones is still difficult.

Current Context

Recently, the SC of India upheld the government’s position on including revenue from non-telecommunication businesses in calculating the annual Adjusted Gross Revenue (AGR) of telecom companies, that was opposed by the telecom operators.

The judgment is expected to aggravate the financial stress of these telecom service providers (TSPs).

The telecom sector faces several challenges; hence for the larger public interest and improved telecom services for the subscribers, the panel was needed.

Underlying Issues

  • The industry’s debt currently stands at about ₹4 lakh crore.
  • Due to intense competition from free voice and cheap data, the gross revenue of the telecom industry had fallen between 2017-18 and 2018-19.
    • Currently, the price of data for the customer at an average of ₹8 per GB is almost the lowest in the world.
    • Also, the average revenue per user per month has declined from ₹174 in 2014-15 to ₹l13 in 2018-19.
  • The other challenges include- lack of fixed-line penetration, high right-of-way costs, current tariff system, deployment of 5G, etc.

Demands By the Sector

  • Reduction in spectrum usage charges and the Universal Service Obligation Fund levy.
  • Deferment of Spectrum Auction Payment that is due for the next two years, i.e., 2020-21 and 2021-22, so as to ease the cash flows in the industry.
  • Viable pricing for voice and data, which falls in the realm of Telecom Regulatory Authority of India (TRAI).
    • Telecoms demand that TRAI must prescribe a minimum charge for voice and data services in order to ensure the long-term viability and robust financial health of the sector.
  • The TSPs also claim that a large amount of input tax credit is available to their credit in government accounts. They request that it must be adjusted against future government levies so that their distress could be eased for now.

Adjusted Gross Revenue (AGR)

  • It is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
  • It is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.

Spectrum Usage Charge

  • It is the charge that is required to be paid by the licensees providing mobile access services, as a percentage of their Adjusted Gross Revenue (AGR).
  • The spectrum slabs/rates for the same are notified by the Government from time to time.

Universal Service Obligation Fund (USOF)

  • USOF ensures that there is universal non-discriminatory access to quality ICT services at economically efficient prices to people in rural and remote areas.
    • Currently, it is charged at the rate of 5%, while the TSPs demand it to be reduced to 3%.
  • It was created under the Department of Telecommunications in 2002.
  • It is a non-lapsable fund, i.e., the unspent amount under a targeted financial year does not lapse and is accrued for next years’ spending.
  • All credits to this fund require parliamentary approval and it has statutory support under Indian Telegraph (Amendment) Act, 2003.

Initiatives by Government

  • The Government of India launched a new National Telecom Policy 2018 in lieu of rapid technological advancement in the sector over the past few years. The policy has envisaged attracting investments worth US$ 100 billion in the sector by 2022.
  • The Department of Information Technology intends to set up over 1 million internet-enabled common service centers across India as per the National e-Governance Plan.
  • FDI cap in the telecom sector has been increased to 100 % from 74 %; out of 100 %, 49 % will be done through the automatic route and the rest will be done through the FIPB approval route.
  • FDI of up to 100 % is permitted for infrastructure providers offering dark fiber, electronic mail and voice mail.
  • The Government of India has introduced the Digital India program under which all the sectors such as healthcare, retail, etc. will be connected through the internet
  • Department of Telecommunication launched ‘Tarang Sanchar’, a web portal sharing information on mobile towers and EMF Emission Compliances.
  • Six-fold increase in Government spending on telecommunications infrastructure and services in the country
  • Over 75 % increase in internet coverage
  • Country-wide Optical Fibre Cable (OFC) coverage doubled
  • Five-fold jump in FDI inflows in the Telecom Sector


  • Telecom Industry:
    • The telecom industry has to keep the tariff rates sustainably high instead of trying to make them the cheapest in the world.
    • Fair Competition: It should be ensured that there is no cartelization and no undercutting. Fair competition among the companies should be encouraged.
    • Outcome-oriented Investment: All the money which comes in after the government order should be invested in the telecom sector only so that consumers do not need to pay more and the revenues will be stabilized.
    • Technology: India should invest in technology rather than products:
      • India is importing $40 billion worth of telecom products mainly mobile phones every year which is not a feasible option for the future because of very limited foreign exchange.
      • Buying technology will cost more once but will save foreign exchange over the time.
    • Telecom industry has to bring a shift from service-oriented investment policies to manufacturing-oriented policies.
    • Telecom sector needs to do value addition by tying up with the service providers from education, medicine and entertainment sectors apart from increasing the tariff charges.
  • Government:
    • Practical Deadlines: The deadlines should consider current challenges faced by the telecom industry.
    • In order to revive BSNL and MTNL, the government has decided to merge them and then provide funds to the merged entity. The same approach should be applied to other private service providers also.
    • The interest collection by the government should be done over a longer period of time giving ample time to the telecom industry to come over the financial stress.
    • The government can do away with the penalty and the interest or it can reduce them as well.
    • The government should put the penalty and interest money into a capital investment for the telecom industry, to provide the availability of equipments and technologies on an equal access basis.
    • The government should look for more avenues of revenue generation and should be equally responsible for making this whole sector viable.
    • The government should incorporate Make in India in the telecom industry to boost manufacturing.
  • Consumers:
    • The problem in the telecom sector is an evolving problem that needs evolving solutions depending upon the availability of the consumers and their ability to pay.
    • The free data should be cut down to some limit.
    • The segment of consumers who is willing to pay should be charged for the benefits as per their specific needs.
    • Slabs and priorities for different segments of consumers should be set with customer-centric and need specific plans and personalization facility.
  • What can be learned from foreign models?
    • Data has been very rationally planned in the international market and there are various plans suitable for various and specific needs of the people.
    • Telecom sector is tied up with various other commodities like the handset company apart from the operators only.
    • Moving Wi-Fi zones or public Wi-Fi zones in India should not be completely free of cost instead India can learn from the Emirates, Singapore which charges its customers for data after exhausting the limits set by the airlines.

Way Forward

The telecom sector has a lot of segments in itself which create avenues, bring technologies, innovations, and employment raising India to the global level.

To make this industry sustainable and to stop the unfair trade practices and blind competitions, industry itself, consumers and government will have to share the burden together.

The sector has to look for a holistic approach with convergence to bring convenience to the customer.

It is a very strong component in our growing economy and deeply rooted in the system with various allied sectors. New and better ways should be found out for asset optimization and revenue generation.

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