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Business News/ Opinion / Where is the telecom sector headed?

Where is the telecom sector headed?

The sector faces fierce challenges from the likes of Google Inc., Microsoft Corp., Facebook Inc., WhatsApp, and Skype

With a high churn rate and lowest average revenue per user (Arpu) in the world, Indian telcos are in a unique spot with a high debt burden (`2.5 trillion).Premium
With a high churn rate and lowest average revenue per user (Arpu) in the world, Indian telcos are in a unique spot with a high debt burden (`2.5 trillion).

With the change in government, the telecom industry could be a catalyst for gross domestic product (GDP) growth and promote inclusiveness. Beginning with an almost monopolistic era until 1990, followed by frequent reforms from 1991, the fierce competition among services providers has made the Indian telecom industry the second largest network in the world with low tariffs and a saturated urban voice market.

The sector today faces fierce challenges from the likes of Google Inc., Microsoft Corp., Facebook Inc., WhatsApp, Skype and various start-ups and established companies offering so-called cloud services. With a high churn rate and lowest average revenue per user (Arpu) in the world, Indian telcos are in a unique spot with a high debt burden ( 2.5 trillion), declining voice revenues (about 0.45 per minute), low spectrum per operator (quarter of global average), congested networks with high subscribers per megahertz spectrum (about 3.8 million).

The issues and challenges in the telecom sector include:

High tax: Indian telcos face high regulatory costs (about 25% of revenues), which include spectrum usage charges (3-5% of adjusted gross revenue or AGR), licence fees (8% of AGR), service tax (12.36%), etc. Further, the charges for Universal Service Obligation Fund at 5% of revenue are discouraging private investment.

Hyper competition: The telecom industry is highly competitive with 10-12 operators in each service area.

High cost of next-generation technologies: India is lagging behind the world in rolling out new generation technologies. 3G in India has not taken off as per expectations yet, while the world has moved on to 4G. This is a classic chicken-and-egg problem. The extremely slow 3G uptake, the high-priced 4G-enabled devices, and lack of local language and regional content might be hurdles in the future growth of next-generation networks.

High cost of smartphones and tablets: The smartphone is a medium for telcos to increase Arpu by providing data services. Without reasonably priced smartphones and tablets ( 3,000-6,000), upsurge of data will not happen in low-income, semi-urban and rural communities.

Low rural penetration: Urban India has become a mature market with teledensity of 148%. The opportunity lies in the rural market where teledensity is only 48% and where about 70% of the population resides. High capex is required to set up infrastructure that supports new generation services in rural areas.

Raise Arpu.

Go green: Telecom is the second largest diesel consumer in the country. The resulting energy costs erode profitability. According to the Smart 2020 report, solutions based on information and communication technologies can contribute towards the reduction of global greenhouse gas emissions by 15% by 2020 and in the process, also deliver energy savings to the tune of more than €600 billion (around 50 trillion) to global business.

Go on cloud to realize potential of M2M (machine-to-machine): A study by industry lobby Nasscom and consultancy Deloitte estimated that the Indian cloud computing market will reach $16 billion (around 96,000 crore) by 2020. Telcos should embrace the cloud opportunity to enable mobile health, education, banking and agriculture, and realize the potential of connected devices, which is a $4.3 trillion global opportunity.

Mobility mantra: The success of globally distributed enterprises will depend on providing more flexibility to the workforce through mobility solutions such as bring your own device, tele-presence, etc. IT support service budgets of companies are moving from wireline to wireless solutions for providing connectivity and flexibility.

Reduce cost of smart devices: The penetration of smartphones, tablets, phablets and e-readers is increasing to cater to the burgeoning data needs of consumers. Data growth is likely to be triple of voice growth. Hence, the cost of smart devices should come down through innovation and strong R&D (research and development).

Capture the screens and become a smart pipe: Consumers are demanding access to media at any time, any place and across platforms. Telcos that provide 24/7 connectivity need to move up the value chain, aggressively collaborating with value-added services firms and others to dominate the screens.

Rise of social media: The latest paradigm shift was brought by social media campaigns during the last election, where 29 million people made 227 million interactions regarding the polls on Facebook and about 60 million tweets from the day the elections were announced to the day polling ended. Telecom operators need to understand the importance of social media networks and have an important strategy to leverage them keeping in mind the demographics of India.

The government should realize the power of telecom as a growth enabler, which can add 15% to GDP. Efficient allocation of future spectrum bands will enable telcos to invest more in the network infrastructure. The availability of unused spectrum bands is necessary for future deployment of new technologies. The high costs faced by telecom operators can be minimized with a liberal regulatory policy.

The government should work on a policy to provide stable permit terms, effective policies on mergers and acquisitions, spectrum sharing, trading and re-farming, suitable taxation, and a detailed implementation plan for all these.

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Updated: 04 Jul 2014, 05:41 PM IST
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