Telecom Sector- Is this the next big sector to watch out for?

Overview of the Indian Telecom Sector 

The Indian telecom sector stands as the world’s second-largest, boasting a subscriber base of 1.084 billion, including internet subscribers, as of February 2024 (Wireless + Wireline). In terms of market size, it is estimated to reach USD 48.61 billion in 2024, with a projected growth rate of 9.4% CAGR over the next few years. This trajectory suggests a potential market size of USD 76.16 billion by 2029.  

Notably, the sector ranks as the fourth largest recipient of Foreign Direct Investment (FDI) in India, constituting 6% of the total FDI inflows. Direct employment in the sector accounts for 2.2 million jobs, with an additional 1.8 million jobs indirectly supported. The period from 2014 to 2021 witnessed a 150% surge in FDI, amounting to USD 20.72 billion, compared to USD 8.32 billion during 2002-2014. The government has sanctioned 100% FDI in the telecom sector, underlining its attractiveness to foreign investors. 

The Indian telecom industry boasts an overall teledensity of 85.64%, with rural teledensity at 58.92%, indicating substantial untapped potential. In contrast, urban teledensity stands at 134.13%. As of June 2023, the country’s total internet users surged to 895.83 million (including narrowband and broadband subscribers), with rural users accounting for 40.19%. India ranks among the top consumers of data globally, witnessing a significant increase in average monthly internet data consumption from 61.66MB in March 2014 to 17.36GB per month by March 2023.    

*Tele-density is the number of telephones per 100 population, an important indicator of telecom penetration.

Industry Scenario: 

Telecom Key Players in Country:

List of companies with their user base:

Following the Lok Sabha Elections in 2024, phone companies are considering raising calling rates. Bharti Airtel is poised to implement this price hike, potentially increasing call costs by up to 17%. Notably, there was a prior price hike of around 20% in December 2021. 

As of April 24, 2024, Bharti Airtel has risen to the fourth position by market capitalization, surpassing ICICI Bank. The company’s strategy to increase Average Revenue Per User (ARPU) to Rs 286 involves tariff hikes contributing approximately Rs 55. Additionally, customers transitioning from 2G to 4G will contribute Rs 10, while opting for higher-priced 4G and 5G services will contribute Rs 14. These developments suggest potential new plans for 5G, especially since both Airtel and Jio lack distinct plans for 4G and 5G, with the offered prices being fairly similar. 

The Vodafone Idea FPO garnered an impressive subscription rate of 6.99 times on the final day, signaling positive prospects for the telecom industry. This oversubscription reflects growing confidence in industry growth. In strategic moves, the company is collaborating with You Broadband and introducing Vi One, a comprehensive offering that integrates mobility, broadband, and content. Initially launched in 12 cities, Vi One is set for further expansion. Vi also aims to bolster its data and service offerings to compete with industry leaders like Airtel and Jio. As part of this strategy, Vi has introduced four Vi Max plans priced at Rs 401, Rs 501, Rs 701, and up to Rs 1101, replacing older plans starting from Rs 399. 

Companies in Transmission line Towers/Equipment: 

The four operators running the telecom network utilised 7,50,718 towers as of February 2023. Therefore, there has been a nearly 60% increase and a 40% increase in towers and Base Transceiver Stations (BTS), respectively, since December 2017. The number of Mobile BTS is 23.98 lakh in December 2022. To make India 5G-ready, there’s a push for the fiberization of telecom towers. Currently, 36% of towers are fiberized, and plans involve deploying 12 lakh towers. 

Indus Towers is a big player in India’s telecom tower scene, managing a massive network of over 211,775 towers and 360,679 shared spots where different telecom companies coexist. They rely heavily on Bharti Airtel and VIL for their revenue, with other big names like BSNL, MTNL, and Jio also using their towers. They’re boosting their spending to Rs 9500 crore in FY24 to prep for the 5G rollout nationwide.  

Suyog Telematics, on the other hand, focuses on installing and maintaining poles, towers, and fibre optic cables, especially in Mumbai, aiming to make cities and rural areas 5G-ready. Kore Digitals operates in Maharashtra, offering top-notch communication services to companies and telecom operators. Sar Televenture Ltd specialises in installing 4G and 5G towers and fibre optic cables, with a strong connection to Bharti Airtel. 

Creating separate tower companies has helped telecom companies lower operating costs and improve capital structure. This has also provided an additional revenue stream. Inspired by the success seen by Indian players in the towers business, most of the operators around the world are replicating the model. 

Companies in Telecommunication-Equipment:

Tejas Networks Ltd makes wireline and wireless networking and focuses on tech and innovation. Their orders at the end of Q3FY24 were Rs 9028 crore, mostly from India. They serve various customers like telecom companies, ISPs, and government agencies.  

Avantel Limited deals with wireless and satellite communication products, especially for defence. They work with big names like the Indian Army and ISRO. ITI Limited makes and services telecom equipment and is part of projects like BharatNet and FTTH Rollout for Bharti Airtel. They had orders worth about Rs 12,000 crore in FY21. 

Opportunities in the Telecom Sector: 

• India is the second-largest market for smartphones, and it’s expected to have 1,420 million mobile subscribers by 2024, up from 1,200 million in 2018. By 2022, there were estimated to be 820 million 4G users. 
• Internet use is growing, supported by government policies. By March 2023, there were 846.57 million broadband subscribers. The government plans to provide free Wi-Fi to over 1,000 panchayats to boost digital inclusion. 
• To promote cashless transactions, Paytm introduced a service allowing instant payments without the need for an internet connection. UPI transactions hit a record high in January 2023, totalling around Rs. 12.98 trillion. 
• India is expected to see rapid growth in telecom advertising, with an estimated annual growth rate of 11% between 2020 and 2023. 
• The Mobile Value-Added Services (MVAS) industry in India was forecasted to grow at a rate of 18.3% between 2015 and 2020, reaching USD 23.8 billion by 2020. 

Conclusion 

The Indian telecom sector is poised for exponential growth, projected to reach a market size of USD 76.17 billion by 2029. A key driver of this growth will be the adoption of 5G technology and infrastructure development, particularly in tapping into the rural market to increase tele-density. With evolving technologies, the telecom sector’s future is set for a skyrocketing trajectory.