This article is written by Shivani Nair, from Manipal University, Jaipur. This is an exhaustive article which deals with the topic of the trends that are currently going on in the telecommunication reform series.
This article analyses the trends in the telecommunication reform series. The term ‘reform’ indicates a lot of things to a lot of people. However, under this context, we can assume that the term ‘reform’ means to make something that is wrong, as something that is right or to improve upon certain things, put into a better condition or a form.
Reforms are the need of the hour in the telecommunication business and it is a well-known fact that in every sector of our society, the reform is very much required and needs to continue according to the need of the hour.
The telecommunication reform series in itself is an industry on its own as well as one of the pioneers of the growth of other sectors. The telecommunication reform series tend to fall under the reforms such as “meso-economy”. This means that the sector-specific reforms tend to follow a similar pattern. These reforms were first initiated due to the sad state of affairs in the telecommunication business in India.
Pre-reform era in the telecommunication sector of India
This era did not present a very pleasing picture of the society as it was categorised as a very low density of telecommunication, before the monopolisation of the telecommunication services infrastructure and the equipment given by the government before the 1980s and the absurdly high call rate charges. At that period of time, the telecom services had been treated as a luxury and not as a necessity as we do now. In the pre-reforms era, there was no fund directed towards the telecom business, there was a long waiting list for the telephones, there was poor service quality of the telecom services, which as a result manipulated the billing and connections of the telecoms, even though they continued to be ill-maintained.
Phases of the telecom reforms in India
The heralding of the telecommunication reforms in India basically turned into a revolution that sensationalised the telecom industry. There are three phases of the telecom reforms in India:
This first phase was introduced in the 1980s under the Prime Ministership of Rajiv Gandhi, who aimed at the mission of “better communication”. Though these reforms were not ground-breaking, they did set a trend in the telecom industry of India. The following points describe a picture of the telecom reforms in this phase:
- The telecom services in India had been lagging even in the most developed parts of the country.
- There was a very high cost for the local calls, let alone the international calls.
- Low customer satisfaction.
- There was no framework for an operational license for the private sector and for the foreign telecom industries willing to establish their base in India.
- No independent regulatory body for the telecom sector.
- No adjudication method other than the courts.
The second phase of the reform in India started with the liberalisation of the economy in India and with the announcement of the new economic policy that had been legislated by the Indian Government.
This policy was actually one of its kind that started out with plenty of ambitious targets in mind. But this did not go as planned and boomed. The issues in the second phase were:
- The investments required to set up a telecom business was very high.
- The license feeds which the operators used to feed were very due to the reason that they were not trained for the same and most of the time it was miscalculated.
- Charges that were paid by the users were prohibitive in nature and thus the charges were too much and restrictive in nature to prevent the users from paying a lump sum amount of money in return for the very restricted use of telecom services.
- The estimates made by the operators were incorrect in most cases.
These were some of the mistakes made in the telecom sector in the second phase. To rectify these mistakes, the third phase was introduced.
This is the most important phase in the telecom reform trend. It is also sometimes known as the third generation reforms. It began with the announcement of the telecom policy in the month of April in the year 1999. This policy brought many of the errors in the earlier two phases. This is the phase that is still going on. The summary of this phase is:
- Affordable and effective communication amongst the users.
- Development of the telecom facilities in the areas other than the urban areas such as hilly areas or areas where there isn’t much population.
- Propelling India to become an Informational Technology superior.
- Strengthening the research to build world-class manufacturing capabilities.
- Transparency and efficiency in spectrum management.
- Providing internet access to every area of the country.
- Enabling the Telecom Industries and Companies of India to become truly global players.
The phase is still going on and this has led to the three major trends that have taken place in the year 2020.
A rise in the demand for data
Technological advances and faster internet connections will only keep on changing the way we live. Gushing video on ultra-top quality TV screens, augmented reality applications, continuous web-based gaming, and keen homes are the rush of things to come and make them thing in like manner: They require high-limit, low-idleness arrange associations. It is affordably moderate for network organizations to overhaul gadgets in the system to speed up and limit, while the best choice for wireline telephone organizations is to supplant the copper wire with fibre, which can be costly and only practical in more densely populated markets.
Increasing capital expenditure on the horizon
The global wireless carriers have invested more than $1.3 trillion in their wireless networking areas since the year of 2010. It was invested mainly for the purpose of installing 4G technology and the introduction in 5G towers. The investment in 5G could prove to be significantly greater than the previous generations. There are also a few cost benefits that have emerged due to the fact that there is network visualisation, improvement in the spectrum, and the usage of fibre optics cables. The aggregate of the telecom sector is expected to rise, though, the growth may vary from region to region.
The overall capital spending will remain elevated because of the fact that there are investments required for the 5G, the 4G, and the fibre optics cables. Nevertheless, the good and stable operating cash flows for a lot of incumbent players must support the normally stable key credit measures.
Key risks and opportunities
Next-generation of wireless technology- 5G
5G wireless broadband has always had the potential to considerably widen the horizons of the addressable markets for telecom carriers and embed them further into the digitalised ecosystems and the nation’s economies. Close term use cases or utilizations of 5G, be that as it may, probably won’t demonstrate to be the impetus for solving dull income development in created markets. Upfront (or on the other hand long-lead-time) interest in capital and remote range for 5G could end up being significantly higher than earlier ages of remote arrangements because of system thickness prerequisites, conceivably harming the return of capital measurements. The potential for important income to slack 5G buildouts presents critical credit dangers for suppliers tightening forceful organizations.
Overall, one has to have a cautious view and believe that the accelerated investments disrupt the close term quality of the credit when the balance sheets will already have been stretched. One could expect that moderately higher spending of the capital could be supported by the strong operating cash flows that result in very stable credit metrics. One can also believe that 5G deployments are more likely to be slower than the other markets whilst minimising the leverage concern for a period of two to three years.
Disruption caused digitally
The advances in technology are changing the way the consumers of the telecom industries communicate with each other or through the operators. This has resulted in an increased amount of consumption of data and streaming of videos. The intense industry competition and the commoditisation of the services can be limited to benefit from these kinds of trends. In the industry of wireline, the traditional wireline services are being ditched to accommodate the wireless trends of services.
In the cable, the consumers have increasingly cut the video cord to be in favour of over the top. (OTT), an alternative called the online streaming, given the very high contribution of the television into the fixed bundle. Yet so, the cable providers have an edge over the others with their pretty high margin broadband services. It is important for them, however, to keep the churn low, which they often do so, by bundling the services, in order to provide value in addition to what they already provide. These providers shall benefit from the increasing demand for data over a period of a year or two. Although, increasing the competition from 5G wireless, over the long term, puts a halt on the increasing prices of the cables. In the 5G wireless, more data traffic on the network would increase the capital capacity. The companies can now mitigate the threat of disruptive technologies and preserve the quality of the credit with such investments that maximise the position of competition, sustainable differentiation of product, and such other products and services that earn a strong return.
Downturn in the global economy
In the cases where the telecom industries show a mismatched and weak correlation to the factors such as macroeconomic factors, as they are near necessities, lower-income could result in the lower acceleration of the video subscriber losses. It could also result in a decline in the business or the revenue of cables, wireline, and infrastructural providers, and reduce the postpaid subscribers to prepaid.
But evidently, the biggest risk is that tightening those credit market conditions would lead to very high borrowing costs and elevated risk of refinancing. This situation is particularly relevant in these cases, given that there is a substantial rise in the global debt of telecom industries and reforms. This debt is currently an estimated amount of $1.9 Trillion which is double the amount of what it was in the year 2012. It is also estimated that about $180 Billion amount of debt could still increase, given the current scenario over the next few years so much still needs to be refinanced. It is also important to understand that the companies that are the most vulnerable are at the lower ends of the spectrum rating.
Globally, there are about forty-five credits that have been rated as “B” or even lower that will face the consequences of difficulty of assessing capital as the debt comes due. If that does not happen, then they could face a reduction in cash flow from an increased interest expense making it harder for the leverage to be reduced.
Overall, one can expect that carriers in countries such as the United States of America and even certain Asia-Pacific countries, mainly central Asia, will be predicted to have an aggressive approach in their 5G build-outs while the European Countries and the operators of Canada are more likely to take a conservative approach. In the Asia-Pacific region, one must note that the telecom operators will be able to cover up their investments mainly with very stable cash flow. These countries include- South Korea, Japan, and China.
The consumer-driven data collection which has been fuelled by the mobile and broadband services in the Informational and Technology devices, which have soared and have placed unprecedented pressures on the networks are amongst the trends that we see in the year 2020. The landscape has changed the shape of the telecommunication sectors in India and everywhere around the world with the introduction of OTT and has also increased its user access capabilities. These are the trends that have currently gained momentum this year and have been rising from the previous years.
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