Not a Simple Story

What can we expect from the fast moving telecommunications market next year?

With the mind boggling numbers which it represents and the complex dynamics which define it, there is nothing simple about the telecom story in India. There is also a little in the corporate world which inspires such extensive debate and hope of inclusive national growth and empowerment as the telecom sector does. With all its challenges, it still forms an enviable segment of our nation’s growth story and so it forces a critical view into the future as we stand at the end of another year. If 2011 saw an unexpected movement in the telecom industry with the NTP and upturn in the ARPM towards CYQ3, 2012 promises to deliver no less.

Consolidation of a vastly fragmented industry will perhaps be a key development, the policy currently prevents M&A over a stringent number of parameters and as a result, there are currently around 12 service providers operating in various circles. Similar markets with more relaxed M&A norms have around three to four players. The consolidation, if it is allowed, will result in greater efficiencies in the spectrum allotment: Currently, the smaller companies with quite low subscriber share have been allotted a disproportionately high share of spectrum. Policy proposals pointed at this year indicate that we can expect a considerable consolidation activity—something that will assist the smaller players in exiting from the market, and in an unexpected benefit to consumers, and might result in a better quality of service after all these years of rock-bottom tariffs.

Optimistic Approach

Reaching out to new markets will also be at the center of the industry’s efforts in the coming year. There is an optimism about the industry increasing its size in terms of subscriber base. Although the current subscriber base is large, half the population is yet to be covered by the sector. This is evident from the low spread in several areas. Urban mobile teledensity of more than 150% will push the operators to devote their energies to hiking rural mobile teledensity, which is currently low. Moreover, given that the monthly increase in rural mobile connections has consistently fallen from 17.8% in March 2009 to 5.9% in March 2011, the service providers may also reconsider their strategies in the rural market. So, there still exists a huge opportunity in the sector.

The downward trend in ARPU, which looked like it was slightly arrested towards the end of 2011, still remains a concern area and in the coming year, more operators will look at data services not just for the consumers but also for enterprises. Multiple app stores and the launch of 3G will drive the operators to offer the customer some pleasant surprises in terms of marketing and service offerings. Especially, music downloads will continue driving data revenues.

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An enhanced focus on data is necessary, keeping in mind that while voice revenues may not experience much growth now, data revenues are likely to witness a high level of growth fuelled by the demand from enterprise customers. Although the Indian enterprise market has witnessed a strong compound annual growth rate of 20-25% over the last 3 years, the country still lags behind in terms of percentage spend on data compared to other nations.

Key Developments

The NTP 2011 will facilitate the process of allowing the operators to share and trade airwaves in its cellular sector and will also unveil rules to allow the carriers to exit the industry. The new year will see key developments around this as the operators begin to explore the possibility of sharing while the use of spectrum and its auditing will reside with the government. Broadband growth is another area that should expand in the coming year as the Indian providers work towards offering smarter and faster networks.

With more than 65% decline in capital expenditure in 3 years and a decline of $863 mn in the telecom sector in 20082010, the Indian market is likely to see more infrastructure sharing, unorthodox outsourcing deals, rational roaming agreements, and a multi-pronged retail overhaul strategy. The year 2012 will then perhaps be about established players reinventing and rejigging their operating models so that it becomes more responsive to the aspirations of the industry. The author is telecom consulting

leader, PWC India vadmail@cybermedia.co.in