Timely call

| Updated on March 12, 2018 Published on November 18, 2011

A ‘negative' outlook for the telecom sector does not come as a surprise, as the industry is past the heady expansionist phase.

All industries, at a certain stage of their life cycle, encounter a tapering of growth rates alongside pressure on margins. It, then, leads to greater emphasis on cost cutting and quality rather than the quantum of business. That's certainly happening in India's telecom sector, which experienced heady expansion all through the last decade, with the total number of subscribers going up from a mere 40 million to over 900 million. But the incremental revenues resulting from this volume growth have been falling continuously, as the new customers are not as intensive users as the older ones. As a result, the average monthly revenue from a subscriber, which used to be about Rs 260 till four years back, is now hardly Rs 100. No wonder, out of the 15 licensed telecom operators in the country, only four – Bharti Airtel, Vodafone, Idea and Reliance – are today reporting net profits (albeit declining every quarter), while two are just about making operating profits and the remaining not even that. It has prompted the global credit rating agency, Fitch, to assign a ‘negative' outlook for Indian telecom service providers for the coming year.

To be fair, though, the operators have not been totally oblivious to the problem. Take Airtel's recent decision to disconnect subscribers who do not use their phones for 60 days continuously. The company has explained its decision to weed out such inactive users by noting that they are merely blocking phone numbers. Taking them out of the network would enable better utilisation of the operator's existing network infrastructure. Other operators are bound to follow Airtel, which would then signal a new phase, where the industry goes after quality as against quantity of users. So far, they had no real reason to do so, especially when allocation of spectrum by the Government was linked to the number of subscribers garnered. It actually generated a perverse incentive to cook up subscribers and offer economics-defying schemes such as per-second and lifetime validity plans even if it meant the connection got used only twice a year.

One must welcome, in this context, the Government's proposal to de-link spectrum allocation from reported subscriber numbers. From here on, telecom operators will have to pay market-based prices for airwaves through the auctioning route. That, in turn, would also mean more correct reportage of users by operators: They might even start showing lesser numbers, as inactive subscribers (an estimated 30 per cent of the total) face disconnection. All this would get a further fillip if the Government comes out with a clear policy allowing exit of unviable operators, which will lead to consolidation within the industry. In the long run, that may not be bad even for consumers, if it results in fewer call drops and better overall service quality.

Published on November 18, 2011
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