Is the worst over for the Indian telecom industry?

Until a few months ago, telecom in India was a story of doom and gloom. A court ruling about licensing fees and related penalties that operators owed the government was just the latest in a string of setbacks. Debts were mounting; Vodafone Idea was threatening to quit the market; customer spend was falling; profit margins were wafer-thin.

But recent weeks have brought more favorable developments, including a massive injection of funds into Indian operators and an increase in prices after years of decline. The tide may be turning.

Mega investments
The last two months have witnessed a massive injection of funds into Indian telcos, and especially Reliance Jio. In total, more than $13 billion has been invested in Jio Platforms, Jio's parent company. Investors have included social media giant Facebook as well as a raft of private equity companies, such as Silver Lake, General Atlantic, Vista and KKR. It is hard to think of a similar race between investors to pump billions into a telco.

While this partly reflects Jio's appeal, it is also a recognition of the Indian growth story and the country's digital potential. Reports that Amazon is interested in Airtel and that Google is eyeing a stake in Vodafone Idea are further signs of that potential. And it bodes well for the local telecom industry. (See Say hello to India's first digital service provider, Who's invested what (and why) in India's Jio Platforms? and Record funds for Indian telcos could signal revival.)

Tariff hike
A tariff hike in November last year was perhaps the first sign that conditions were improving for Indian telcos. The effects were seen in Airtel's surprisingly good results in its last fiscal quarter, with average revenue per user (ARPU) up 14%. (See Airtel's latest results are a pleasant surprise.)

Vodafone Idea sticks around
Vodafone Idea's decision to stay in India, even if it continues to be in distress, is a massive signal that all is not lost and that executives are optimistic conditions will improve. (See Vodafone Idea continues its Indian journey, for now.)

But it will be some time before the operator returns to profitability. Its massive debt will affect its ability to invest in new spectrum or network upgrades, putting it at a disadvantageous position alongside rivals.

Consolidation
Just four years ago, there were about ten to 12 service providers in every circle (service area). Now there are just three private operators and one state-owned telco (BSNL-MTNL). A spate of mergers and acquisitions, triggered by Jio's disruptive launch in 2016, has led to major consolidation.

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What all this means is that the existing operators now have more chance of turning a profit. A recent report from Jefferies, an investment bank, notes a fall in the intensity of competition and says this will help operators double their revenues over the next five years, to reach nearly $38 billion.

COVID-19 pandemic
The COVID-19 pandemic, which hurled humanity into an unprecedented situation and brought economic activity to a near standstill, seems to have brought positive tidings for the Indian telecom industry.

Lockdowns have forced Indians to adopt online platforms for numerous tasks, including entertainment, gaming, banking, education and working from home. Broadband usage has soared, and interest is likely to remain high in the aftermath of the pandemic as Indians grow comfortable with doing business online.

Indeed, data traffic has risen 12% to 15% during the lockdown and many subscribers have been upgrading their services. That should boost ARPU for all telcos and might even spur the development of applications in areas such as virtual and augmented reality, the Internet of Things and the smart city. New applications could mean additional revenues for service providers.

On the other hand, the economy is struggling and usage by lower-income subscribers, especially prepaid customers, is likely to suffer.

As the market matures and dependence on broadband increases, the quality of the network experience will become more important, as it has in other countries. Combine that with reduced competition, and it is easy to envisage another increase in prices. The era of cheap mobility may be coming to an end.

— Gagandeep Kaur, contributing editor, special to Light Reading