Mint Explainer: Are more reforms needed for the Indian telecom sector?

India's telecom sector is a critical pillar of the country’s digital economy. It provides services to over 1.2 billion people and contributes significantly to the country's GDP. While several reform measures have been taken by the government to help the sector, it seeks more enabling initiatives that it feels are necessary to drive growth, improve financial health, and enhance consumer services. Are more reforms still needed for the sector? Mint Explains.

Has the telecom sector's financial health improved relative to previous years?

Yes, there have been improvements in the financial health of the telecom sector in recent years. The industry faced severe financial stress in the past due to high debt levels, the heavy burden of spectrum fees and high operational costs. The entry of Reliance Jio in 2016 made matters worse, as the company offered ultra-cheap data tariffs and made voice services free of cost, piling pressure on other telecom operators. However, over the past two to three years, a more stable business landscape has emerged. Major telecom operators, especially Bharti Airtel and Vodafone Idea (Vi), have been able to improve their financials with increased average revenue per user (ARPU), consolidation within the sector, and a reduced need for competitive price cuts. The sector as a whole has also seen a rise in ARPU, the average revenue they derive from each user that drives profitability, largely due to tariff hikes in 2019, 2021 and 2024. Yet, the industry still faces substantial debt burdens and needs to make continuous investment to expand and improve infrastructure, particularly for 5G services.

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How have earlier reforms, including those of September 2021, helped the industry?

Several reforms have been introduced over the past few years, with the most significant being the telecom reforms announced in September 2021. These reforms were a turning point, aimed at providing relief to the cash-strapped telecom sector, improving the industry’s financial health, and encouraging infrastructure investments. The government allowed telecom operators to defer spectrum auction payments for four years. This move eased the immediate cash flow burden on operators. It granted a four-year moratorium on spectrum payments, and bank guarantees for telecom operators were substantially reduced. The reforms provided for an easier spectrum auction process and a reduction in the number of required licenCes. The government agreed to exclude non-telecom related revenue in the calculation of ApGR, which it referred to as Applicable Gross Revenue, which was a crucial step to remove a large cost burden on the operators. The September 2021 reforms have helped stabilize the financial situation for operators like Vi, which was on the brink of collapse, and have allowed for smoother operations.

With the govt recently waiving bank guarantees, what kind of capital does it unlock for telcos?

Bank guarantees typically tie up large amounts of capital, as telecom companies must pledge funds with financial institutions. The removal of this requirement will free up capital that can be deployed into network expansion, 5G infrastructure, and other critical areas. This is especially vital for financially-strained operators like Vi that had to pay up ₹24,500 crore as bank guarantees. With this move, telecom operators now have the potential to increase their cash flow by channeling funds that were previously locked in guarantees. This gives them greater financial flexibility, more capital outlay towards building better infrastructure offering new services, especially in rural areas and in the 5G space, which requires significant upfront investment, and reduces their dependency on borrowing.

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Will solutions to the industry's AGR demand and that of fair share with OTTs be enough as reform measures?

Reducing and reviewing dues that telcos owe on account of adjusted gross revenue (AGR) - income from core services like mobile and internet that is used by the government to levy spectrum usage charge and licence fee - over the past many years has been one of the key demands of carriers, with operators arguing that the government’s revenue-sharing model unfairly includes non-telecom services like content distribution. The Supreme Court ruling of 2019 on AGR, which imposed a massive financial burden on telecom operators, has been a major cause of their financial distress. Industry executives feel that continued efforts to rationalize AGR, ensuring fair taxation, will be necessary and carriers like Vi have started the discussions with the government on this. The issue assumes larger significance after the Supreme Court struck down in September a curative petition filed by the carriers to recalculate the AGR dues. On the other issue of fair-share, the rise of OTT platforms such as Netflix, Amazon Prime, and WhatsApp has led to debates about whether telecom operators should receive a “fair share” of the revenue generated by data usage attributed to these platforms. Some operators argue that OTT platforms are benefiting from telecom infrastructure without contributing financially to the telecom operators. Telcos are asking for a share of revenue from OTTs and are pushing for government intervention.

What more reforms are needed to better services for consumers?

While the government has made significant strides in reforming the Indian telecom sector, more is needed, especially to improve services for consumers and ensure long-term sector growth. India has one of the lowest data costs in the world, which surely helps consumers, but the service quality often lags behind global standards. Ensuring better coverage, not only in urban areas but also in rural and remote locations, and improving the reliability of networks, are a key priority for the government. The Indian government has taken steps to push telcos to roll out 5G service at what has been arguably the world’s fastest 5G roll-out, which helps in achieving these parameters. However, a larger focus on reducing spam and potential frauds through spam has also become a key priority for the government. This has percolated to telcos that are introducing their own solutions to counter the menace. For instance, Airtel introduced its anti-spam solution that is built into the service without the customer signing up for it. The Telecom Regulatory Authority of India (Trai) has beefed up requirements to be met by telcos to ensure reduction of spam. The number of registered complaints against unregistered senders was 1.89 lakh in August 2024, falling to 1.63 lakh in September, and 1.51 lakh in October, government data showed. The Trai is engaging with the Union ministry of consumer affairs, central and state governments departments, RBI, Sebi, PFRDA and Irdai, Nasscom, Fintech Association for Consumer Empowerment (FACE) and other organizations to increase awareness.

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