Indian Telecom Industry – Stuck in a rut
Reeling under the pressure of borrowings for 3G services, the profit of telecom sector is likely to dip by 84.7% in 2011-12, according to an economic survey of Indian telecom industry. PAT (Profit After Tax) during 2011-12 is expected to fall by 84.7%, mainly on account of the sharp rise in the industry’s interest outgo and higher depreciation charges due to the heavy borrowings for acquiring 3G licences and rolling out 3G services. The pre-Budget document said it expects sales of telecom industry to slow down in 2011-12 to 8.7% from 10.5% during 2010-11. However, it is optimistic about the growth next year and expects the revenues to gain momentum in 2012-13 with a growth rate of 10.6%.
Needless to remark here, the Indian telecom industry has been stuck in a rut, majorly because of ambiguous government policies and a poor blueprint for growth. The telecom industry earnings have been used to offset large government subsidy projects for a while now. However the auction model with such high outgo of capital from the Telecom operators without an adequate and clear indication from the government on the way forward has knocked the wind out of the sails for the Telecom industry.
The learnings have not been absorbed by the government yet. Case in point, is the 2G auction as per the recent Supreme court 2G verdict. Then there is the 700 MHz auction later this year. With profits and coffers drying out, the Government still believes that the operators have an appetite for so many auctions. On the other hand, there is no clear roadmap from the Government as to how much spectrum is going to be auctioned and when. The recent Supreme Court verdict will lose its very purpose if the policy back and forth continues. The reason telecommunications industry is in a mess today is that our policy roadmap is unclear. Any successful industry needs a strong and consistent policy framework to be successful. The Indian telecom industry has been let down by the Government in this very critical requirement.
It might help to reduce the role of various Government bodies involved in the day-to-day affairs of the industry. There are so many Government bodies under the aegis of DoT that it is difficult to keep track. TDSAT, WPC, TRAI, Telecom Commission – each at crossroads with the other.
The recent Supreme Court judgment coupled with the forthcoming National Telecom Policy are a golden opportunity for the Government to revamp the processes and to focus on the basics to get the industry moving. Reducing the role of the Government in the day-to-day functioning of the Government might be a good beginning.