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Indian Telecom Story (Part XXIII): Re-cap and Challenges ahead

Posted in Industry updates by Manas Ganguly on January 5, 2010

2000-10 has been a decade when Indian telecom industry took wings and giant strides ahead. It is slated to become one of the leading sectors contributing to the economy by 2014.This post recaps the last 10 years in Indian telecom and details the challenges ahead of the industry and the way ahead to keep the growth on the up.

The Indian Telecom Success story

At the beginning of the decade, the Indian telecom industry burdened by high licence fees was struggling to survive. It was then that the Government came with the New Telecom Policy (NTP ‘99). It allowed telecom operators to move from a licence fee regime to a revenue share era.

Since then, the growth has been only gaining steam. From a little over a million mobile subscribers in 2000, today there are more than 500 million subscribers. Yet, mobile operators are adding over 14 million new subscribers each month. There is no doubt on the success of the sector. Almost all the targets that were set have been reached. It is by far one of the most competitive sectors. However, the intense competition has led to a shortage of spectrum

The sector has crossed all targets set by NTP ‘99. Against a target of 15 per cent telecom penetration by 2010, it is at 45 per cent now. The 15 per cent target was reached in September 2006 itself. Similarly, while the NTP set a target of 4 per cent rural teledensity by 2010, the country already has a 15.35 per cent rural teledensity as of June 2009.

Challenges before the Industry

Regulatory Uncertainty
The biggest challenge that the telecom sector faces is regulatory uncertainty. A clear regulatory roadmap will ensure that the sector is not continuously bogged down in controversy. This will result in greater investor optimism. Considering that communications is a key sector for overall economic development, this should be the topmost priority for the Government.

Slow progress on future growth agenda
Despite all the Telecom success story, there are areas where progress is quite slow. The 3G auction is a classic case. Despite TRAI coming up with its recommendations on 3G in September 2006, the auctions are yet to happen and have been delayed multiple times over.

Balancing Growth and Profitability
According to industry reports, the revenue figures across the industry for the quarter ending September 2009 were at Rs.38,755 crore, lower than the figures in December 2008, which stood at Rs.39,408 crore, in spite of the fact that the overall subscriber base was lower by 125 million in the latter case. This is primarily due to the fact that the markets now have 13 operators fighting for market share when the market can support 4 to 5. The fight is likely to get compounded when mobile number portability (MNP). This allows users to move between service providers without having to surrender their number. This is likely to remove the last barrier that currently prevents users from switching between service providers, and push up churn rates to as high as 8.0% per month. Even now, customer satisfaction levels with service providers are low in India and customers would be looking for better deals once MNP come in.

Way Ahead

The immediate focus of the Government should be on completing the auction of 3G and broadband wireless access spectrum. It should then ensure that mobile number portability is introduced across the country. That should be followed up by allowing the entry of mobile virtual network operators.

The concern over the slow growth of broadband could also be covered once the broadband wireless access (BWA) auctions take place in 2010.

The Government also needs to come out with a clearer mandate on mergers and acquisitions in the sector. Consolidation will also lead to better management of spectrum.

Though bidders are wary of the base price of Rs. 4,040 crore fixed by the government, most service providers badly need the additional spectrum that will come with the licences and are likely to fork over the money the government is demanding. This is also seen as the primary reason foreign companies are not interested in taking on standalone 3G licences, as the others with a captive 2G base would score over them in building sustainability.

Rural markets are the only growth area, but they also represent the low end of the revenue potential spectrum. With a measly 15% penetration in rural markets, the scope for growth is tremendous yet daunting in the fact that average revenues per user (ARPU) are already Rs. 200 or so, and will be down to double digits in the rural areas.

All these elements – per paisa billing, MNP and 3G licensing – are momentous events happening in the space of a year. They are likely to bring about a paradigm shift in the industry, and lead to a consolidation in the market in the coming years. Which players survive and what strategies they use will determine the health of the industry and will be under keen observation in the coming days.

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  1. […] This post was mentioned on Twitter by ronnie051178, ronnie051178. ronnie051178 said: Clear regulatory roadmap would result in clarity on the future prospects & investor optimism. […]

  2. uberVU - social comments said, on January 5, 2010 at 10:36 am

    Social comments and analytics for this post…

    This post was mentioned on Twitter by ronnie051178: The biggest challenge that Indian telecom sector currently faces is regulatory uncertainty.

  3. […] here: Indian Telecom Story (Part XXIII): Re-cap and Challenges ahead … SHARETHIS.addEntry({ title: "Indian Telecom Story (Part XXIII): Re-cap and Challenges ahead […]

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