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Who Is Funding The Telecom Industry Today?

In the modern world where many things are changing and evolving, new technologies are also performing this task. So what exactly is a study in the telecom industry? What is the role of telecommunications in the day-to-day lives of people? And how were they funded? In this report you will find these answers and more!

In India, telecom industry is the second-largest in the world. Recent structural reforms and 5G rollout are encouraging growth to continue. This report attempts to analyze the telecom industry with included auction calculations, bank credit, etc.

All about telecom companies and their funding

India’s digital economy is expected to grow by leaps and bounds, reaching US$ 1tn by FY26. India also has 900mn Internet subscribers by FY26 as a result of rapid growth in rural areas. In terms of FDI, telecommunications account for the third largest sector within India at 7%. The total number of telephone subscribers in India stood at 1173m as of June 22nd including both wired and wireless. As far as telecom penetration is concerned, there are 85.1% phone subscribers agains 800.9 mn broadband customers.

As per the Department of Telecommunications, India has a huge percentage of telephone subscriptions and 98% of them are mobile subscriptions. In order to improve the manufacturing efficiency in the telecom industry, the DoT started a new PLI scheme in February 2021 with an outlay of over Rs 12,195 cr spread across five years. The reform had also announced on September 21 other waves of reforms such as: 1) rationalizing Bank Guarantees and Adjusted Gross Revenue 2) tenure for spectrum to be raised from 20 to 30 years 3) spectrum can be surrendered in 10 years and in order to stimulate investment, 100% Foreign Direct Investment allowed under the automatic route.

Sectors such as telecom are seeing continued growth following a sharp decrease in FY18. Growth is expected to rise following a positive growth in the following year with base effect helping.

The telecommunications sector has raised funds in recent years through bonds, which have reached Rs 2,414 in FY20 and Rs 28,861 cr in FY21.

ECBA approvals for the telecom sector have grown by US$ 1.3 billion as of FY22. This figure made big strides in financing, especially within the year when working capital was a priority, while refinancing loans were also an option. As of FY23, there has not yet been any ECB applications to the phone providers.

How have auctions fared so far?

Spectrum auctions are a frequent occurrence in this society and throughout history, with the first spectrum auction when it came to a close in 1994. With technology developing at an exponential rate, allocation process has seen its share of changes too. For instance, there was the case of Supreme Court canceling the 122 licenses of what we now call the 2G spectrum auction in 2012. The case went on to change quite significantly since then with regards to how one can enter into these auctions (i.e., payment scenario). At this point, up until 2016, you were required to pay some amount as an upfront fee – usually 25%/50% for each bid for a given band that you were attempting to bid for. Nowadays, there is no longer mandatory obligation of paying an upfront fee before joining a spectrum auction, which is described by many as a great milestone indeed.

In the month of August, Indian Department of Telecom moved forward in the 5G auction. This auctioning process allowed companies to choose to pay the sum in 20 equal annual installments or can even provide an upfront cost (not mandatory). The government has already made $17,873 as part of a spectrum due.

Based on this news, the allocation will take place by October 22nd and a rollout will start. Expect to see a lower operational cost for these operators. This auction is also anticipated to be more successful than past auctions because over 71% of the spectrum has been sold compared to last two, where it was only 41% and 60%. (Note how credit has grown over these periods along with % of spectrum sold and the spectrum amount.)

Conclusion

As the Government of India prepares to launch 5G services in coming months, it is important to note how the telecommunications sector has performed over the years. This has been studied through credit, ECB approvals during that time and revenue from auctions. In addition to this, PLI will also create employment and higher output levels in India with a boost to manufacturing.

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