Telcos Investment Recovery in Limbo as Tariff Hike Backfires, Price War With Satcom Services Likely in 2025

The country's private telecom operators face twin challenges on investment recovery in the New Year – customers leaving their network after tariff hikes and satellite players mainly Elon Musk's Starlink eyeing a chunk of their bread and butter data business.

Private operators have invested around Rs 70,000 crore in telecom infrastructure and radiowave assets this year to expand the coverage of next-generation 5G services which is one of the main highlights of 2024 for the sector.

To recover investments and protect margins, private telcos resorted to tariff hikes in mid-year but that move backfired.

Around 2 crore subscribers dropped their connections. Reliance Jio, Bharti Airtel and Vodafone Idea jointly lost 2.6 crore customers due to a 10-26 per cent price hike.

Around 68 customers switched to state-run player BSNL which refrained from price hike. The loss-making PSU still offers generation-old 3G service and is on the path of rolling out 4G network across the country.

Despite subscriber loss, private players need to recover investment and invest more in 5G to offer new-age services to drive future growth.

According to EY India Markets and Telecom leader Prashant Singhal, the cumulative investment of Reliance Jio, Bharti Airtel and Vodafone Idea was around Rs 70,200 crore in 2024.

Digital Infrastructure Providers Association (DIPA) Director General Manoj Kumar Singh says the telecom infrastructure sector looks at a cumulative investment of Rs 92,100 crore to Rs 1.41 lakh crore in 2022-2027 to support the 5G ecosystem.

Union Minister Jyotiraditya Scindia also backed telecom operators on the tariff hike issue citing investments made by companies in the network.

The rollout of 5G services in 2024 has paved the way for the adoption of emerging technologies like artificial intelligence which offers huge growth potential.

"5G deployment has been a game-changer. We've witnessed a significant surge in 5G base transceiver stations, rising from 412,214 in December 2023 to 462,854 by November 2024,” says DIPA, whose members include Indus Towers and American Tower Corporation.

Impending huge investments in 5G and maintaining healthy margins in the face of subscriber loss are not the only challenges for private telecom players.

A new threat from satellite broadband service providers is staring at private telcos in the New Year. The satellite broadband sector has seen intense lobbying on the spectrum allocation issue in 2024.

Private telecom operators led by Mukesh Ambani-promoted Jio have been for strongly protesting against the administrative allocation of spectrum to satellite broadband service providers like Elon Musk's Starlink.

Telcos fear that allocation of radiowaves to satellite broadband providers without auction will come at a low price and make a dent in their data subscriber market share.

The government's decision to allocate satcom spectrum without auction also saw political mud-slinging with opposition members equating the move with 2G spectrum case. As per the Comptroller and Auditor General of India (CAG), 2G spectrum allocation caused a notional loss of Rs 1.76 lakh crore to the national exchequer.

Scindia said the country cannot forget the "2G scam" -- a blot on the country's history. "A scam that not just led to a colossal loss of Rs 1,76,645 crore to the exchequer, but also gave government-corporate collaboration its worst name, a.k.a crony capitalism," he said on X.

The minister reiterated that even administrative allocation of spectrum to satcom players will be done at a price recommended by the Telecom Regulatory Authority of India (TRAI).

Indian Space Association (ISpA) Director General AK Bhatt has batted for expeditious allocation of satcom spectrum, saying it would help satcom players start their services in India as soon as possible and bring the unconnected areas under the coverage.

According to analysts, satcom players’ entry may delay mobile services tariff hikes by telcos and new entrants may trigger another round of price war which may push the sector into another round of financial stress as well as lower investments in the network.

Private players like Vodafone Idea are already ridden under huge debt. It has awarded a Rs 30,000 crore contract to Nokia, Ericsson and Samsung for the supply of 4G and 5G network equipment for three years.

GX Group CEO Paritosh Prajapati says that the investment in the Indian telecom sector will continue as operators are looking to improve their network.

EY India Markets and Telecom leader Prashant Singhal cautions that it is crucial for the telecom industry to find a balance between tariff rationalisation to recover their investments without compromising on subscribers' experience.

"Telecom companies should not ignore low paying customers and it is very much required to include them in the data-led digital economy as per government mission of inclusive development. Operators also need to invest in building infrastructure on which the entire digital economy including start-ups, e-commerce are thriving," says Singhal.

According to a joint report by Google, Temasek and Bain & Company, India's internet economy alone is expected to register a six-fold growth and touch about Rs 80 lakh crore by 2030. The report estimated that India's internet economy was in the range of Rs 12.86 lakh crore to Rs 14.5 lakh crore in 2022.

Singhal said that internet companies or the new age businesses are generating high margins and their corporate social responsibility funds can be used for building rural and remote networks where returns are low for telecom operators.

Telecom industry body COAI has been pushing for revenue sharing with foreign big tech companies like Google, Amazon, Facebook, WhatsApp etc as videos, images and other content on these platforms are estimated to consume 80 per cent bandwidth.

"The massive traffic created by LTGs (large traffic generators)has significantly strained telecom networks, compelling TSPs to invest an additional Rs 10,000 crore in infrastructure in 2023, according to our study.

“While TSPs bear these costs, LTGs, without contributing, amass multiple incomes through subscriptions, ads and data-driven marketing, with revenues largely outside India's tax ambit," COAI Director General SP Kochhar said.

He said that telcos also faced the blow of equipment theft as well during the year.

Telecom equipment theft has emerged as a major issue affecting Indian TSPs, incurring an estimated Rs 800 crore in losses already, causing major disruptions in 4G/5G expansions and impacting the quality of mobile services, Kochhar said.

Also, the year 2024 ends with the unsolved menace of pesky and fraud calls with scamsters powered by high-speed 5G networks devising new strategies like digital arrest, misusing AI to extort money.