An IIPM Initiative
Wednesday, October 27, 2021

Is the telecom sector ready for the next wave?


After growing at a robust clip over the past decade, the telecom sector ran into a wall of problems – from weak financials of operators to regulatory bottlenecks. As a result, the industry’s buoyancy and energy seems to have dissipated. But data services present new opportunities that could bring life back into the game Anirudh Raheja
ANIRUDH RAHEJA | Issue Dated: March 24, 2013, New Delhi
Tags : Telecom sector | video calling | Mobile TV | CAGR | FY12 |

The telecom sector in India witnessed exponential growth, especially in the wireless segment, in the last few years. The wireless subscriber base in India grew from FY00 through FY10 at a compound annual growth rate of 77.5% to reach 584.3 million subscribers in FY10. This number climbed to 752.19 million subscribers in December 2010. Currently, the number stands over 900 million and is next only to China. Even the bouquet of telecom services has evolved, ranging from basic telephony to voice, video and data services, Wimax, WLAN and VPN, and bandwidth on demand to virtual private networks. The sector is now migrating from pure play voice connectivity to offering a broad bouquet of data services like video calling, mobile TV, and chat. Many other utility services like m-payments and m-commerce are also becoming an integral part of consumers’ lives, transforming the mobile data traffic composition. This evolution is expected to increase mobile data traffic at a CAGR of 126% over the next five years. Sure, the next phase will be data-driven but unlike the first phase – when operators riding on the back of an unprecedented boom of more than 700% in subscriber base from just 1 million subscribers to over 750 million between 1998 and 2010, scorched growth – the new phase comes with challenges. Already, intense competition in the sector over the past few years has dented the profitability of operators. The industry could generate revenues of just Rs. 1131.8 billion in FY12 compared to Rs.1141.3 billion a year ago, dragging it back some 0.83%.

Feeling the heat, most telecom companies have already started raising their tariffs. Given the fact that 3G is still at a nascent stage and VAS growth is also quite muted, tariff hikes will help telcos to earn more and to improve their situation. But while focusing on revenue and profitability is a step in the right direction, income augmentation is possible only if operators also put their shoulders behind enhancing their data services. Unfortunately, the focus on data is largely missing currently as is evidenced from the huge deficit of applications across a spectrum of activities – health, agriculture, education, financial service and the whole electronic commerce platform, from couponing to ticketing. In this context, a faster rollout and spread of 3G services will facilitate introduction of various VAS such as video calling, gaming, high-speed Internet access and other data services. Given that a substantial part (around 60%) of the total VAS revenue goes into the kitty of the service providers, the development of this segment is likely to offer them an opportunity to support their falling revenue. With the implementation of mobile number portability, service providers are expected to constantly develop new VAS.

Abhishek Chauhan, telecom analyst at Frost & Sullivan says, “to experience quality VAS on 3G, quality 3G services are needed. This would definitely take some time, at least 2-3 years.” But with 3G subscribers expected to reach 142 million in 2015, operators who move slowly on this front will likely lose out big time. Thankfully, leading operators are quickly getting on to the game. In a bid to get more users to try the next generation 3G services telecom operators are now offering better cost-effective deals to the masses. Going forward, 3G spectrum is expected to attract major investments and open new growth avenues for the telecom sector. However, the past few months have seen a sharp decrease in capex by operators because more and more monies are now required for various “levies”. According to a report by Crisil Research, investments in telecom have been affected by the lack of policy clarity and, in some cases, stretched financials of companies after the acquisition of 3G / BWA licences.

In fact, the unclarity on major policy issues has spooked the industry like never before. Take, for instance, the issue of refarming and mortgaging of the spectrum. Rajan Mathews, Director General, Cellular Operators Association of India, opines, “Refarming, as proposed by the Government, is largely akin to “redistribution” and it is founded on flimsy grounds. The entire restructuring of an efficient network by ripping off the existing infrastructure, disconnecting the connected and then deploying an infrastructure that is more demanding in terms of capital, space and construction does not make any sense or benefits the industry or consumers.”

Quite a few issues have remained unsolved between the government and service providers. These include matters related to restrictions on interconnects between own systems and networks across service areas, eligibility criteria and tenure of licence period, the USO fund, as well as various spectrum related issues. As a result of this policy muddle, operators have been forced to shut down networks. Recently, Uninor shut down its operations in Mumbai, which left 1.8 million of its users stranded. In Kerala three operators – Aircel, Telenor and Videocon – have shut down their networks. It’s not surprising that investor rating agency Fitch has noted recently that regulatory risks such as such as an one-time charge for excess spectrum, spectrum re-farming and imposition of high spectrum renewal fees are high for the Indian telecom industry compared with other markets in Asia-Pacific.

India’s telecom sector still has great potential to contribute to the country’s growth ands prosperity. But the government needs to jettison its ambiguous policies and draw out a fresh blueprint for the industry’s growth. That will put the wind back into the sails of the beleaguered telecom industry.

Rate this article:
Bad Good    
Current Rating 4.0
Post CommentsPost Comments
Posted By: C.Chandrasekaran | Madurai | March 17th 2013 | 21:03
With the Supreme Court's cancelling 200 spectrum licences issued to private operators close on the heels of telecom scam, the ire of the private companies was on display with their lowest ever bidding, which piqued Kabil Sibal who sought to justify the rationale of FCFS. It was a open secret that the kitties of private players were found brimming beyond level. Vodafone did not budge an inch to remit IT of Rs.13000/- thanks to its taking shelter under non Indian territory from where the firm took its roots. Apprehensive of the depleting profit levels, the firms want to arm twist the centre as rued by telecom minister. Ironically, the corporates for whom the UPA government loosens its strings of revenue forgone which obviously is more than the fiscal deficit less reciprocates.

Issue Dated: Feb 5, 2017