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Telecom's coming changes

Drop in mobile subscribers is good news

Business Standard  |  New Delhi 

The telecom industry has lurched from crisis to crisis in 2012. The latest shock is the apparent loss of subscribers in July and August. However, the drop in numbers may actually be a sign of sanity. It is a rational response to changes in the spectrum allocation policy. The mass cancellation of 122 2G licences in February was followed by the announcement of auctions with much higher reserve prices. Additional spectrum per circle will now be sold at discovered auction prices regardless of the number of subscribers operators possess. This is unlike the earlier practice where additional spectrum was allocated on the basis of subscribers, encouraging the retention of inactive subscribers.

The Telecom Regulatory Authority of India (Trai) says the mobile subscriber base dipped to 913 million in July from 934 million in June. Industry players claim it has fallen by a further five million in August. The losses are mostly due to the deletion of prepaid subscribers who have not made a single call in the last 60 days. Over 20 million inactive numbers were deleted in July by Reliance Communications alone. Hence, the lower subscriber base won’t translate into concomitant revenue losses and, instead, will lead to cost savings. Active subscriber numbers have actually risen, from 696 million in June to 698 million in July. ARPU, or average revenue per user, should improve. The next few months will be crunch time. Operators must raise vast sums for 2G auctions. This won’t be easy in the current climate. For the sake of their future, operators must also roll out 3G and 4G networks. This would create platforms for value-added services (VAS). Last but not least, operators must conceive and market VAS effectively to ensure higher usage.

For years, the sector’s problems were masked by healthy subscriber growth coupled to artificially low-priced spectrum. The underlying problems are becoming clear now as the spectrum policy is rationalised. There is over-crowding with more than a dozen players per circle. Apart from price wars, the sector has faced litigation, delays and arbitrary policy flip-flops. This has retarded internal consolidation, as well as 3G and 4G adoption. The bulk of roughly 700 million active mobile subscribers – over 90 per cent – are low-ARPU prepaid 2G customers. Urban networks are saturated, while rural areas are under-penetrated. A new awareness of the potential dangers of high microwave radiation may complicate the technical task of coverage. Other states could emulate Rajasthan, where the high court has placed zoning restrictions on towers.

As of now, only two or three operators seem genuinely profitable. The National Telecom Policy 2012 eases norms for mergers and buyouts. Consolidation appears to be inevitable, since costs will shoot up with the 2G auctions and this is bound to flush out the weaklings. The deletions of July and August, therefore, signal a tectonic shift in the business’ dynamics. It is time stakeholders, especially operators and policy makers, cleaned up their respective acts.

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First Published: Fri, September 14 2012. 00:03 IST