Facilitating shared infrastructure for a competitive market

Following liberalisation in the early 1990s, India’s telecommunications sector underwent a marked shift from being served by a state-owned monopoly operator to a highly competitive market with several private service providers. Prior to privatisation, 2.5 million Indians were on the waiting list to receive telecom connections, and only around 140,000 villages — accounting for less than 20% — were covered by service providers. The 1994 National Telecom Policy also emphasised the need for private investment to bridge the resource gap of over INR 230 billion (US $7 billion) and recommended involvement of the private sector to increase teledensity from 0.8% — a record low even amongst low- and middle-income countries.

Private providers, along with government entities, came to develop, own, and maintain telecommunications equipment and infrastructure, and to provide telephony and mobile services to millions of Indian consumers. Despite this, infrastructure availability and growth in subscribers did not grow to desired levels. Since infrastructure development in the sector is capital-intensive, the inability to share infrastructure acted as a major barrier to entry for new telecom providers seeking to enter the market, while rising costs drove incumbents to near bankruptcy. In fact, the Telecom Regulatory Authority of India (TRAI) identified high costs and underutilisation of network infrastructure as reasons for the financial failure of operators. This reflected in high service prices for consumers, fewer than expected subscriptions, and limited deployment of services to rural and other areas where competitive pricing was not feasible. In fact, rural teledensity was at an abysmal 0.4% in 1999.

To make services more affordable and widely available, telecommunications authorities in India started to develop regulatory frameworks that sought to drive down capital and operating expenses by encouraging infrastructure sharing between telecommunications service providers.

With the stated objective of creating world-class ICT infrastructure in India, the New Telecom Policy 1999 explicitly allowed infrastructure sharing between services providers. In 2000, the Department of Telecommunications encouraged companies to register as infrastructure providers (IPs) and allowed private sector players to develop and provide assets such as dark fibre, rights of way, duct space, and towers, and digital transmission capacities to telecom service licensees. Such a sharing model led to the creation of a flourishing and independent telecommunications infrastructure industry. Many incumbent providers delinked their passive infrastructure offerings and established separate entities. As a consequence, tower sharing started to flourish by 2005. By mid-2019, approximately 520,000 towers, many of them carrier neutral, were operational.

Since licensing conditions already allowed for passive infrastructure sharing, operators engaged in it as a matter of industry practice and operators routinely rented tower space from competitors to support rollout of their own services. In 2007, the TRAI recommended steps to accelerate passive infrastructure sharing and made amendments to allow active and backhaul infrastructure sharing by mutual agreement of providers. The Department of Telecommunications operationalised these through revised guidelines for infrastructure sharing in the sector in 2008, and operators have estimated savings of about 20% when sharing tower infrastructure. To bridge the gap in rural service provision and promote quality of service through competitive conditions, Universal Service Obligation Fund subsidies were offered for setting up and managing mobile service towers that are to be shared by at least three operators.

In 2016, the Department of Telecommunications allowed licensed service providers to share active infrastructure such as antennae, transmission systems, and feeder cables. It was expected that this move would help operators reduce their capital expenditure costs by 35%, and their operating costs by around 5%. Reiterating its commitment to fostering an active sharing environment, the TRAI formally recommended in 2020 that tower companies own and share radio access network (RAN) equipment (such as in the Peruvian Internet para Todos collaboration), transmission links and wireline access networks. Such an expansion, in the scope of tower infrastructure providers, has been long sought by industry associations and opens up new opportunities for shared infrastructure costs.

Today, India is one of the fastest-growing telecommunications markets in the world and the second-largest market in terms of the number of subscribers. In fact, India’s teledensity (the number of telephone subscriptions per capita) stands at 90% as of the beginning of 2020 — a tremendous increase from the figure of 0.8% of the 1990s, with urban and rural rates at 161% and 57% respectively.

India also ranks relatively high on internet affordability, placing among the top ten countries in the Affordability Drivers Index, and 18th in the Inclusive Internet Index 2020. In part owing to fierce price wars between operators competing for market share over the past few years, data rates have plummeted and Indians pay some of the lowest prices per GB for mobile broadband in the world. Mobile data traffic per smartphone has more than doubled in just the past three years in India.

These measures to support the unbundling of telecommunications services and infrastructure enabled Indian infrastructure providers to make infrastructure as a service available to other telecom carriers. This reduces the capital expenditure burden for new entrants and in turn supports a competitive market by more readily allowing operators to serve the same area and give consumers choice between networks.

Mobile network coverage has seen exponential growth over recent years. In just the past ten years, 3G mobile network coverage has risen from 19% to 90%. Thanks in part to cheap data packages and greater network coverage, India’s rural users have come to outnumber their urban counterparts as a population of internet users, although more than half of the rural population remain offline.

This optimisation move by the telecom regulator has delivered many benefits to the average consumer. However, since infrastructure sharing was established as a matter of policy imperative, the competitive landscape of India’s telecommunications sector has changed significantly. Owing to mass consolidation over the past five years, the market has shrunk from over a dozen service providers to a three-operator market. In fact, many argue that India’s latest telecom service provider, Reliance Jio — which greatly benefitted from infrastructure sharing in the sector — is heading towards a carrier monopoly. While Jio’s entry strategy has been credited for exponential growth and lowered tariffs, a competitive market is crucial to ensure consumer welfare and effective utilisation of sharing frameworks.