Once the poster boy of India’s economic growth, the Telecom Industry is now at the crossroads. From the highs of late 1990s till around 2008, the telecom sector has fallen victim to its own success. The “subscriber linked criteria” for gaining more and more spectrum has been a boon as well as a bane for the Industry.
In the first decade of the 21st century, there was tremendous growth, with high revenues and profits. It was no coincidence that when India was clocking high GDP growth rates the telecom industry was also growing beyond one could imagine. But that very criterion is hitting back. After adding so many subscribers, a saturation level has been reached. For the new acquisitions, prices had to be lowered to such levels not seen anywhere else in the world. There were literally prices wars. The problem was that in order to acquire/poach new subscribers, the tariffs were lowered in a hope that it will translate into more talking time which was not the case though. COAI commissioned a study from PwC on the Indian Telecom Industry scenario. The report says that the minutes of usage (MoU) per user have fallen from 465 (2007) to 369 (2011). So this has actually had a negative effect on the revenues due to falling tariffs. Now even the number of subscribers added (2011) has been witnessing a sharp decline compared to the previous years. In July 2011, new subscribers added were only around 7.6 million, the lowest since June 2007.
In addition, the industry had to also bear the cost of implementing Mobile Number Portability — estimated to be around Rs 500 crore, and an equal amount is expected to be invested to satisfy the Government's security concerns. Now there are so many players in the industry, huge pressure on the margins affecting the big players as well as the small players, falling MoU, network congestion, falling ARPU etc. The challenges faced are unique and has many facets. Add to that the biggest concern is that the growth story has not completed a full circle wherein the telecom revolution has not yet touched the lives of more than half the population of our country. The question is what can be done to revive the industry?
1) First of all this requires the operators and regulators working together.
The industry is banking on the New Telecom Policy to be unveiled later this year. As per the PwC report, the operators in India pay 19-28% of their annual revenues to the government in the form of licence fees, spectrum charges and service taxes. The Government earned Rs 1.36 lakh crore from the telecom sector in 2010, compared to Rs 9,100 crore in 2004. The NTP-2011 can be framed in such a way to reduce the taxes and levies, so that the operating costs come down. This does not impact ARPU directly but will have an effect on the cost per user (margins) which will in turn change the way operators plan their investment for example setting up of rural infrastructure which is in tune with the government’s theme of inclusive growth.
2) Low spectrum prices.
The recently concluded auctions of 3G spectrum and BWA have put tremendous pressure on the profit margins. The government earned nearly Rs 68,000 Crores from the 3G auction and Rs 38,000 Crores from BWA auction. As per the current regulations one Telco cannot have a stake of more than 10% in another Telco. If this clause can be removed or in other words if the market structure for mergers and acquisitions can be liberalized, it would lead to consolidation in the industry thereby cooling off the price wars. As I am penning down this article, TRAI is acting on an exit policy for those operators who have either met the roll out obligations or not received the spectrum. This will lead to an increase in the spectrum bank of DOT. The demand supply market forces will make sure that the spectrum prices will come down. This decision is endorsed by the government as in the current year’s budget; it has estimated the non-tax revenues as Rs 13,000 Crores. So the exit policy is a success, nearly 200 MHz of spectrum will be available for sale and hopes to cover the non-tax revenue component.
3) Increase Data services and customer quality experience.
India’s internet and broad band penetration is very low at 1.6% and 0.9% respectively. This presents immense potential for the telcos. This will definitely require investments but as mentioned above if the government policies are amended, this will translate into more funds available for the telcos. The point to be noted is the cascading effects of government’s intervention. Also as per a report by research firm IRMB, customer pays on an average Rs 389/month, for mobile net services, which is good news for the telcos as ARPU is declining rapidly. Instead of concentrating on increasing the subscriber base, the telcos can focus on increasing the quality of services. It is more of convenience and satisfaction to the customers, making them habitual of the services and eventually driving usage.
L.KISHAN CHAND
Class of 2013
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