Sunrise sector, it’s time for sunset
Three years ago, telecom was one of the sunrise sectors of the Indian economy, providing cheap communications access to hundreds of millions of Indians and attractive employment opportunities to thousands of others. An inept Government, which allowed the 2G spectrum scam, and an over zealous regulator, whose recommendations of exorbitant auction reserve prices will send firms into serious debt problems, have applied the brakes on the sector. The ultimate sufferer is the average middle class person looking for a job.
Hiring in the telecom sector shrunk by 60- 70 per cent in the first two quarters of this year compared with last year, according to recruitment firm GlobalHunt. According to the ASSOCHAM survey, there has been a 23 per cent fall in the first quarter of 2012- 13 when compared with the last quarter of 2011- 12. “The industry is no longer hiring in large numbers. It has been happening in the last nine months or so and I believe the trend will continue,” says Ashok Ramchandran, HR director of Vodafone. The worst affected are the firms caught at the centre of the 2G scam and the cancellation of licences by the Supreme Court. Telenor has announced that it is cutting 2,000 jobs in its joint venture with Uninor. If Uninor fails to win a licence in the new auctions for the cancelled licences, its entire workforce of 17,500 could be laid off.
The aftermath of the 2G scam is not the only problem facing the sector. Brutal competition has reduced margins in the voice telephony space. Value- added services in 3G have not picked up. Sources in the Telecom Regulatory Authority of India ( TRAI) say that 3G penetration is no more than 6 per cent of total cellphone users. Revenue streams are therefore struggling. On the other hand, costs are rising. TRAI’s May 2012 recommendations for the auction of the 122 cancelled licences have set a high base price of Rs 14,000 crore. The price set at this auction will determine the price that telecom companies will have to pay for spectrum they already hold, which they received cheaply in the 1990s. That will raise the debt burden and the burden of paying interest at very high rates.
By TRAI’s own estimate, the telecom industry in India as a whole will record losses in 2012- 13 and 2013- 14, the next two financial years. A turnaround to positive profit is expected only in 2014- 15. The next few months will be worse than the last six as the new auctions take place and TRAI begins to reprice old spectrum.