Metropolitan cities like Delhi, Mumbai and Bengaluru had been the epicentres of data usage in India. However, that is changing, thanks to the proliferation of smartphones in Tier 2 and 3 cities, leading to rapid growth in data consumption. According to the recent Ericsson Mobility Report, India has the highest average monthly usage per smartphone at 29 GB which is anticipated to rise to an unprecedented 68 GB by 2029.
Also, according to Nokia India Mobile Broadband Index 2024, the 5G network is penetrating and getting adopted not just in metro cities but also in Tier 2 and 3 towns and rural regions. While the share of 5G in metros amounted to 20 per cent of total traffic, it was 17 per cent, 12 per cent and 14 per cent in categories A, B and C of telecom circles, which cover the rest of India. While this growth presents an opportunity for telecom service providers (TSPs) in India to scale their business, the revenue generation still remains low owing to many reasons.
Smaller cities and rural areas
The availability of affordable data plans and smartphones has made internet access easier and more cost-effective compared to the past. The growing popularity of video streaming platforms, online gaming and social media is driving data usage, particularly during major events like sports tournaments. The digitalisation of services has spurred the usage of e-commerce, online education, mobile payments and e-governance in small cities and rural areas. Generally, users in these regions are price-sensitive, which poses a challenge for telecom operators in monetising this surge in consumption.
To support the momentum, the Department of Telecommunications (DoT) also recently launched the ‘5G Intelligent Villages’ initiative, a programme aimed at bridging the digital divide and promoting sustainable development across key sectors such as agriculture, education, healthcare and governance. Initially covering 10 villages across Gujarat, Uttar Pradesh, Haryana, Maharashtra, Rajasthan and Assam, this initiative is set to catalyse innovation by integrating cutting-edge 5G technology with traditional rural practices. As telecom operators witness a surge in rural subscribers, the demand for robust network services has become critical in even the remotest areas.
While mobile data usage has grown significantly in semi-urban and rural areas, there is emerging demand for reliable Wi-Fi connections. This is driven by the rise in online activities due to work-from-home roles and online learning opportunities, especially after the pandemic. As smart devices become more prevalent, there is a growing need for uninterrupted, high-speed connectivity. Wi-Fi services are considered ideal to provide high-speed connectivity across multiple devices that support smart homes and Internet of Things (IoT) applications and across multiple users.
However, Wi-Fi services in rural and semi-urban areas face significant challenges due to congested networks. As 5G adoption grows, conditions are expected to improve over time. Interestingly, there is also a growing appetite for 5G Fixed Wireless Access (FWA) solutions in rural regions, which could play a pivotal role in connecting the unconnected.
While TSPs are aware of the opportunities presented by the rising data demand in Tier 2 and 3 cities, they are concerned about the challenges they must address to fully capitalise on this growth.
Addressing infrastructure gaps
While 4G penetration is widespread, many semi-urban and rural areas may still suffer from inconsistent coverage and slow speeds compared to 5G. Therefore, expanding 5G networks to these regions will be crucial, but this requires significant investment in infrastructure. The deployment of networks like 4G or 5G is a capital-intensive endeavour due to the need for new and better infrastructure. Setting up fibre-optic networks and upgrading to 5G in remote areas is expensive indeed, and returns on investment may take longer to materialise. A robust fibre-optic backbone is also required to ensure fast, reliable data services. While telecom operators in India have been investing hugely in network infrastructure, many rural areas still lack the necessary infrastructure, creating a bottleneck for expansion.
With 5G, data consumption has touched a new level, in line with the rising demand for high-speed connectivity. The rapid rise in Large Traffic Generator (LTGs) companies, such as YouTube, Facebook, WhatsApp and Netflix, has put tremendous strain on telecom networks, significantly impacting the quality of service (QoS). This scenario is totally unwarranted as these large traffic generators gain significantly from the data usage, both through subscription fees and advertising costs. At the same time, telcos lose both in terms of infrastructure exploitation and dip in traditional services that are channelled to the LTGs’ data services. As data consumption grows, this will emerge as a major challenge, upsetting the balance of the telecom industry.
The telecom operators in India have long been demanding that regulators adopt a fair usage policy to get fair compensation from LTGs, who consume a large share of the network resources to support their applications. According to COAI’s recent analysis, telecom service providers spent Rs 10,000 crore additional in capital expenses (capex) in 2023 to augment network infrastructure, supporting seamless data traffic consumed by top LTGs. While the enhanced data traffic due to LTGs does contribute to operator revenues, it remains grossly inadequate to cover the increase in infrastructure capex. According to our estimates, the government lost Rs 800 crore in Adjusted Gross Revenue dues, direct and indirect taxes such as goods and service tax (GST) from LTGs in 2023, due to the top four or five large traffic-generating apps.
In fact, this is in line with the global asks by telcos across the USA, EU, South Korea and Brazil. Even South Africa's telecom industry body has asked the digital content and service providers to contribute towards the rollout of network infrastructure, as they are responsible for generating an immense proportion of the internet traffic.
Future-proofing telecom
Effective allocation of spectrum, too, is critical for delivering high-quality data services. As demand grows, telecom companies will need to secure more spectrum to avoid network congestion and deliver better services. The relevance of the 6 GHz spectrum comes into the picture in this scenario. The 6 GHz is the only mid-band spectrum range where a contiguous bandwidth to the order of 300-400 MHz per TSP is possible, to address the rapidly evolving demands around data. Therefore, it would be imminent that this bandwidth be allocated for 5G and further, no delicensing of International Mobile Telecommunications spectrum be done.
The industry needs to innovate pricing models to offer affordable data plans in rural and semi-urban areas, which are more price-sensitive. This is crucial to ensure sustainable growth in the future, especially with upcoming innovations around 5G and then 6G.
One of the objectives of The Telecommunications Act 2023, introduced last year is to create robust telecom networks through a well-defined Chapter on Right of Way (RoW). Subsequently, the RoW 2024 rules, which were recently notified, include granting RoW in a non-discriminatory manner and clarifying that this network shall not be considered for the purposes of tax, levy, cess, fees or duties on that property. This will be a major relief for operators to deploy telecom infrastructure in urban and Tier 2 and 3 cities.
The rising demand for data in India’s Tier 2 and 3 cities presents an enormous opportunity for telecom operators. However, this demand can only be fully harnessed if they are prepared to invest in the necessary infrastructure and adopt innovative business models that cater to the unique needs of these regions. With the right support from the government and strategic interventions from the industry stakeholders, India’s smaller cities and rural areas could drive the next wave of growth for the telecom industry.
(Lt Gen Dr S P Kochhar is the director general, Cellular Operators Association of India)