The Turning Point is Not Far Away

The removal of uncertainty over 2G issues, subscriber-centricity and the beginning of market consolidation are likely to make the Indian telecom sector one of the most vibrant and dynamic industries across the world

In the last decade, India has witnessed a telecom revolution scripting a social as well as an economic transformation of the nation. With the revised National Telecom Policy to be announced in 2012 after 13 years, the year 2012 can be seen as the starting point of the second wave of growth for this sector. While market conditions will remain tough, the new policy is expected to bring regulatory clarity on several issues. The removal of uncertainty over 2G issues, subscriber-centricity and the beginning of market consolidation are likely to make the Indian telecom sector one of the most vibrant and dynamic industries across the world. The emphasis on providing localized services in rural sector through strategic tie-ups will be critical for bridging the digital divide. The focus will also be on indigenous manufacturing and creating intellectual property rights (IPRS) to promote economic health. Needless to say, innovation and rational voice and data tariffs across the sector will be of utmost importance for operators across the value-chain.

Key Highlights

The key highlight of 2012 will be the National Telecom Policy, expected to be announced by March 2012. In the next six months, the telecom sector will see the regulatory framework shaping up as a transparent and robust licensing framework, spectrum management mechanism, mergers & acquisitions (M&A) norms and exit policy are put in place. Free roaming and nation-wide mobile number portability will offer more choice to subscribers, while most of the spectrum-related proposals, including re-farming of the 900 MHZ band, will ensure availability of adequate spectrum for operators. The clarity and details on M&A norms will mark the beginning of a consolidation phase which will open up the possibility of incumbents merging with new operators. Consolidation among the incumbents is also likely, depending on regulatory clearances.

Uncertainties around 2G spectrum allocation and pricing have become a significant growth inhibitor in the Indian telecom sector. Additional payouts for spectrum at market prices have been widely debated by stakeholders and a clearer picture is expected to emerge on 2G spectrum pricing in the coming year. License renewal costs and spectrum refarming could, however, potentially be a big drag on sector valuations.

Another area that will be benefited from regulatory clarity is 3G intra-circle roaming arrangements between operators. Most operators have signed bilateral roaming agreements to provide 3G services in circles where they do not hold 3G spectrum. These arrangements have helped operators provide services at a near pan-india level. The Department of Telecommunications (DOT) has asked operators to refrain from offering 3G services through these arrangements. If the Government prohibits these inter-circle roaming arrangements, operators’ addressable market will be affected significantly.