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| Calling for action... |
| Devangshu Datta / New Delhi Oct 11, 2009, 00:32 IST |
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The telecom mess is having a telling effect on both companies and the government’s revenues
For the past two years, the Indian telecom industry has been heading for a crisis. This assertion sounds utterly absurd at first glance since India has become the fastest growing market in the world (and the second largest in terms of subscriber size) during that period. In the last two fiscals, India added over 200 million subscribers. Currently, over 15 million new subscribers are signing up every month.
But during this period, telecom service providers have seen falling average revenue per user (ARPU) and deterioration on the technical front that has severely impacted quality of service. Dropped calls are now a fact of life. There has been no rollout of 3G networks. Nor have service providers been able to adopt new strategies to develop new income streams.
The 3G mess could be resolved if the December 2009 auctions are held, and the winners allowed to rollout 3G networks with adequate spectrum allocation. However, even if these favourable outcomes occur, some 20-25 months have been lost. Many nations have started rolling out 4G.
It is in the government’s interest to resolve the mess. Quite apart from auction fees, which could go a long way towards balancing fiscal deficits, telecom has big positive externalities. Several convincing studies suggest that every 10 per cent increase in telecom penetration results in between 0.6 per cent to 0.8 per cent increases in annual GDP growth rates. Those studies are borne out by India’s own empirical experience.
One of those studies also suggests that every 10 per cent increase in broadband access results in 1.4 per cent acceleration in GDP growth. 3G and its successor technologies, coupled to affordable mobile broadband offerings, is the easiest way to increase penetration.
Although India has approximately 400 million mobile subscribers, the rural–urban penetrations are skewed, with under-10 per cent penetration in many rural areas. Wired broadband penetration is pathetic, with less than 20 million subscribers.
ARPU via traditional voice offerings is bound to fall further due to several factors. One is the increasing focus on rollouts in low-income rural areas, with an emphasis on prepaid. Another is the recent TRAI directive that suggests calls of less than 60 seconds duration should be billed on actual duration rather than rounded up to the 1-minute-rate. That will knock 10-15 per cent off current revenue models.
More generally, there is a historical pattern of telecom rates falling by 95-99 per cent in closed markets that are opened to increasing competition. India’s price wars have driven rates down by 80-90 per cent, from 1999-2000 levels. There’s room for further price cuts. RCom, Airtel and Tata have all slashed rates for calls on their own networks recently.
Data offerings, via mobile BB, is one way forward, since it creates new revenue streams. But that cannot be delivered without 3G or successor technologies. Another possible route to new revenue is dynamic voice tariffs. Many telecom service providers offer differential Net access schemes where logging on at night is less expensive. Lower voice-call rates at night could drive volumes as it has in Africa and Latin America.
A third possibility is what is called “mobile money” in the African markets. Prepaid vouchers are often used as a proxy for cash and cash transfers made by prepaid voucher distributors.
The basic concept is simple. A puts money onto B’s prepaid connection and B pays C the equivalent in cash, less commission. It is a quicker and less painful way for A to transfer cash to C than traditional remittance through money order. In Kenya, a more formal transfer system has evolved, where actual cash transfers are handled through the telecom distribution network with SMS replacing paper money-order forms.
This has the potential to work in India, where it could easily replace the money order system. However, it runs smack into opposition from the banking system, and from the post office. If those institutions actually cooperate with the telecom service providers, there could be major savings for the entire economy.
In the past week, telecom stocks have been hammered as the dark side of the current situation has become apparent due to the TRAI directive on tariffs for under-60-second calls. A further hammering is almost assured. Prospects will not improve unless some of the above become apparent.
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