Not just consolidation: Telcom must share resources in order to survive

Telecom sector needs to pool active resources

Sunil Mittal has made a case for shared active infrastructure, including spectrum, to restore the telecom sector’s profitability and credibility. Spectrum could be jointly owned by what Mr Mittal calls a network operating company from which all service operators can take it on lease. This will transform the operators into purely marketing companies and strengthen their balance sheets. This makes sense, especially in India where profits are under an unprecedented squeeze on account of the high price of spectrum and the tariff war assault by Reliance Jio. Investors have started to stay away from telecom stocks; overseas interest in the sector has turned cold and multinationals like Vodafone, Telenor and DoCoMo have already burnt their fingers. There is also no sign of any improvement in the business scenario in the near- or medium-term. Speaking at the World Mobile Congress in Barcelona, Mr Mittal made the point that while capital expenditure was on the rise, revenues had begun to taper off and this had brought down the return on capital employed to a low of 6.5 per cent. The current competitive intensity could drive it further down.

Industry-wide consolidation is already under way to avoid a crisis: Reliance Communications and Aircel were the first to join the merger bandwagon, Vodafone and Idea Cellular have initiated talks to join operations, and Telenor has sold its India business to Bharti Airtel for a song. In such a situation, it is imperative for operators to save costs. What Mr Mittal has suggested is one way out of the bind. At the moment, each operator builds its own network. If there is a common network, the capital expenditure will come down sharply. The requirement of bay stations, for instance, will reduce. Or take the example of the fibre optic network. Right now, operators like Bharti Airtel, Vodafone, BSNL and Reliance Jio have their own cables, and the government wants to set up another network under BharatNet. This has caused tremendous wasteful duplication of capital expenditure. Instead, if all the operators came together and built a single robust network, there would be no wastage. Similarly, there is a strong case for pooling together spectrum. At the moment, some networks have vacant spectrum, while others are bursting at their seams. In Mr Mittal’s scheme of things, operators will take on lease only that much spectrum that they need. This will lead to increased efficiency in usage of the scarce natural resource. 

Actually, pooling of passive infrastructure has already happened in telecom. The sub-sea cables are all owned by consortiums of operators. There is sharing of telecom towers as well. The need of the hour is to extend it to the active infrastructure: Spectrum, base stations, fibre optic et al. Mr Mittal also made the case for turning the entire country into one telecom circle. This suggestion, too, has merit in it. At present, the country is divided into 22 circles and for each circle, the operators need to have a separate team. One circle will mean lower costs. These are suggestions the government should not ignore. The transformative impact of telecom is well known to all, and yet the sector is faced with bleak prospects. The country is on the cusp of a data revolution. However, with weak operators that revolution, as well as the dream of Digital India, will not reach its logical conclusion. What Mr Mittal has said could help restore the sector’s fortunes.