Telecom sector financial woes will hit employees

Inability to hire new employees, train old ones could have an adverse effect on other aspects of biz

With around four million people employed directly or indirectly by the telecom sector, any major changes in the industry will proportionally impact the country’s economy. The sector is going through one its worst phases since inception. After investing over Rs 9 lakh crore, the sector is struggling to manage its debt of Rs 4.5 lakh crore, with a revenue of just Rs 1.8 lakh crore — a figure that is declining — despite servicing more than a billion subscribers.

Service providers were just recovering from the upheavals of the past — expensive spectrum auctions and debilitating tariff wars — when the new phase of hyper-competition hit them. It was all set for the next stage of evolution — mobile data-based services and all that it brings with it. But now they at seem to have hit a roadblock. 

Hyper-competition has had such an adverse impact on the sector that questions have risen about whether some telecom service providers would survive the next few years. The last phase of hyper-competition that started in 2009 ended with four operators exiting the business five to seven years later. The industry has had almost no time to recover, with the spectrum auctions following almost immediately, followed by licence renewals and other additional expenses. This has forced service providers to severely cut costs and consolidate further. 

Cutting costs has not helped much. Market watchers welcome sector consolidation. Few countries have more than five telcos and in a country where tariffs are among the lowest in the world, fewer players sharing the revenue pie is most welcome. However, since it is a forced consolidation, there are more cons than pros. 

Staff costs account for around five per cent of revenues — not a small amount, as it includes more than two million people directly and close to another two million indirectly, making the sector one of the largest employers. A fourth of the employees — that is, more than a million jobs — are expected to lose their jobs in the next 12 to 18 months due to consolidation. That will bring more sorrow to the sector on which much of the government’s marquee programmes such as Digital India and Skill India depend. Then, there’s the added pressure on overall unemployment numbers. 

The United Nations International Labour Organization, in its 2017 World Employment and Social Outlook report released earlier this year, estimates that unemployment in India will increase from 17.7 million last year to 17.8 million in 2017 and 18 million next year. In percentage terms, unemployment rate will remain at 3.4 per cent in 2017-18. 

These job losses are inevitable given that service providers are being forced to streamline their operations and minimise redundancies, ensuring absolutely no leakages in any aspect of the business, especially manpower. This means that deploying new technologies will not generate more employment, as is normally the case. 

The inability to hire new employees and train the old ones could have an adverse effect on other aspects of business as well. These include attracting global talent and a slowdown in investment in research and development and technology deployment. It will also hamper 5G deployment for Internet of Things and cloud-based services to their full potential. This could leave the country with a bare minimum while the world forges ahead. 

The latest numbers show that recovery, or the proverbial light at the end of the tunnel, is nowhere in sight. 

It’s not just job losses that we need to worry about post consolidation. With reduced competition, increased tariffs cannot be far behind. If consolidation fails, then the lack of a robust telecom ecosystem could severely damage the economic and social fabric of the country. 

According to the GSMA, the global association of GSM technology-based mobile service providers, every 10 per cent of penetration of mobile phone services led to the one per cent gross domestic product (GDP) per capita rate growth. This explains the fact that until mobile phones came along, the country had a GDP growth rate of sub one per cent; it has gone up to around seven per cent since. 

Mobile connectivity has played a pivotal role in bridging the digital divide and moving India towards an equitable and democratic nation. The telecom industry, therefore, deserves immediate intervention to encourage policy and regulatory stability; facilitate growth, innovation and investment and further Prime Minister Narendra Modi’s vision for India.

The author is director general, Cellular Operators Association of India