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Photo: Mint

Opinion | India’s telecom story is not as unique as made out to be

Though seen as an outlier, the sector’s rapid growth and recent fall were part of a global pattern

Even as India’s telecom sector reels from a series of body blows, one of the narratives that has gained currency is of a glorious past devastated by hostile forces. In this nostalgia-infused tale, India is the shining outlier that rapidly built telecom capacity over the last 15 years. Its recent setbacks, highlighted with red ink across balance sheets, is the result of local disturbances, anaemic profitability and poor growth.

The reality may be slightly different. The sector was neither an outlier on its way up, nor is it alone in its fall from grace.

The boom in telecommunications across the world is a somewhat recent phenomenon. In 1976, after a century of telephony, there were just 149 million phones in the US. The numbers in the rest of the world were equally unimpressive. This was an era when telecommunications was considered a natural monopoly. It was only after the market finally opened with the break-up of AT&T and the creation of “Baby Bells" in 1984 that America’s great telecom rush began.

Through the 1990s, heavy competition following the easing of regulations and the break-up of monopolies saw a significant drop in prices of telecom services, leading to an upsurge in consumption. The average price for a one-minute call from a country in West Europe to the US fell from $2 in 1990 to $0.50 by 2000. As a result, international traffic went up 10-fold from less than 10 billion minutes in 1982 to 100 billion minutes by 2000 (Source: The Worldwide History Of Telecommunications by Anton A. Huurdeman).

The 2000s were the period when mobile teledensity took off across the world. International Telecommunication Union (ITU) data shows that mobile cellular subscriptions (per 100 people) went up from less than 1 in 1994 to 104 by 2018. The sharpest rise took place in the first decade of this century.

Thus, even as India was impressively boosting subscriber numbers, it was only one among many countries doing the same. At the turn of the millennium, mobile density in Peru was 4.9 phones per 100 people, according to the ITU. By the end of 2012, led by companies like Telefónica, Nextel and América Móvil, this had gone up to 98.4. Venezuela had a teledensity of just 12 in 1998. By 2016, it was up to 87. The big daddy of telecom growth was predictably China whose mobile teledensity soared from less than 10 in 2000 to around 115 by 2018.

The problem, of course, was that with such rapid reach, saturation was inevitable, and with that came slowing growth. Average revenue per user (Arpu) started dropping even as an entirely new class of competitors appeared to disrupt the market. Having come to the party a bit later than some others, Indian telecom companies continued to grow even as many others abroad were beginning to feel the strain.

By 2016, it was quite evident that consumers were looking at other kinds of communication services beyond just voice and messaging, and consequently, total spending on these services would begin to decline. With nearly two billion customers below the age of 25, incumbents would have to adapt their service offerings to be in tune with them. The promise of vast customer minutes spent perusing YouTube and Facebook on the one hand and the threat of over-the-top (OTT) platforms like WhatsApp and Snapchat on the other should have got Indian market leaders worried. A McKinsey report titled Overwhelming OTT: Telcos’ Growth Strategy In A Digital World and published in January 2017 said: “In the most aggressive scenario, the share of messaging, fixed voice, and mobile voice provided by OTT players could be at 60%, 50%, and 25%, respectively, by 2018." The trend wasn’t going to be any different for India, and on the eve of Reliance Jio’s launch in September 2016, experts were already predicting that voice Arpu would continue to fall due to cannibalization by data.

Riding on freebies and cheap data, Reliance Jio sent many incumbents reeling. By the time the Supreme Court ruling on the adjusted gross revenue (AGR) dues came last October, the situation had careened out of control.

But even in their misery, Indian companies are not isolated.

Through the 1990s and well into the first decade of this century, European telecom powerhouses like Vodafone Group and Telefónica moved aggressively into developing countries whose recently opened markets were hungry for their services. Yet, despite billions of dollars of investment, many of them have fallen off the cliff. Take Telefónica, which spent over $100 billion in building a vast Latin American business in telecom services. At its peak, this business accounted for more than half the company’s revenues. Yet, last year Telefónica wound up its operations in all these markets, barring Brazil, after substantial losses.

Consider also the fate of Telia Co. AB, which in September 2017 agreed to pay $965 million in penalties to US and international agencies in order to settle a long-running investigation into charges of corruption for contracts in Uzbekistan, a market where total mobile sector revenues at that point were below a billion dollars. By then, the Swedish operator was well on its way to winding up its presence in several markets across Eurasia to focus on its core Nordic and Baltic markets.

India’s besieged telecom companies may not find much comfort in the knowledge that they are not alone in their distress. But they could find some clues for survival in the coping mechanisms of others.

Sundeep Khanna is a former executive editor of Mint

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