Goodbye freebies

For companies in the telecom and aviation sectors, revenue is a top concern now and will remain so for some time

If 2018 was a year of deals and low prices, 2019 is all set to reverse the trend, at least in two sectors that we can’t do without — telecom and aviation — both in deep stress yet holding out promise.

For telecom sector, the guidance came from the recently concluded Mobile World Congress in Barcelona, treated as Mecca for the new economy. The annual tech bash made all the right noises about 5G and a bit about 6G too. For India though, the narrative was more about tariffs and market correction. While the two big players Bharti Airtel and Vodafone hit out at the current regulatory regime, which made headlines, the underlying story was about prices.

Paying more hurts, especially so after getting used to freebies. So it’s not good news for the consumer that the only way that telecom companies (telcos) can get their act together is through hiking prices for the services they offer. Top operators such as Airtel and Vodafone have already taken the first steps to raise their ARPU (average revenue per user), and much more will follow. If musings from Barcelona are taken seriously, chances of telecom bills shooting up for the Indian consumer in 2019 are far higher than 5G auction taking off in the country.

Sunil Mittal, founder and chairman of Bharti Enterprises, an industry leader by subscriber numbers for several years, is now looking at a different kind of pecking order. He’s fine with subscriber numbers going down and he’s clear that he’s focused on revenue and not very high-end customers, who typically are Netflix and Amazon Prime subscribers. His message from Barcelona was that the market must correct itself, and it will.

In aviation sector, the price message has played out differently. Jet Airways, which is in deep debt and looking for a financial resolution plan, is going through regular grounding of planes because of non-payment of dues. Indigo, possibly due to nonavailability of enough pilots, has been cancelling flights. These two, along with runway closures in Mumbai airport, have resulted in air fares rising to unheard of levels. While the runway closure is a temporary glitch, issues relating to Indigo’s pilot crisis and Jet’s plane grounding may not ease in a hurry and therefore, high air fares may turn out to be a long-term reality for Indian flyers.

Not only have both telecom and aviation sectors seen closures as well as consolidation in the past, they have also sought government intervention in setting things right. In the case of telecom, the government has not given the operators any relaxation in taxes and levies, ignoring a long-standing demand of the industry. The thinking in the government is that telecom has gone through the highs and lows and knows very well how to come out of such cycles. That’s not exactly how the government feels about the aviation sector at this point. A repeat of Kingfisher is not something that the government wants ahead of the 2019 Lok Sabha polls, and therefore state-owned lenders are at work to stitch up a resolution plan for Jet Airways.

We haven’t heard the last word yet on the Jet deal and can’t be sure of the extent to which the State will go to protect an airline from bankruptcy. Not just in India, even globally, airlines have shut down when faced with similar condition. Pan American World Airways, commonly known as Pan Am, was the largest international air carrier of the United States since 1927, till it filed for bankruptcy and collapsed in 1991. Swissair, the national airline of Switzerland, founded in 1931, also went bankrupt in 2002. Trans World Airlines (TWA), a major American airline, is yet another example. TWA, one of the big four domestic airlines in the US, filed the third and final bankruptcy in 2001.

At a time when companies in the aviation and telecom industry are experiencing turbulence and the focus on higher revenue is unmistakable, a new stream may come as a ray of hope for both. With flight telephony being allowed in Indian skies, telcos and airlines can explore new business avenues, including around the much-hyped 5G. The US President Donald Trump may have tweeted recently that he wants 5G and even 6G as soon as possible, attracting much attention, but India too does not want to be left behind in the march of technology. The Department of Telecommunications has already indicated that the government would go ahead with the 5G spectrum auction later this year as planned. For the companies, however, revenue is a top concern now and will remain so for some time. That’s bad news for the bargain-greedy consumer as prices will go north.