The Rs 1.5 lakh crore Indian mobile telephony sector is going through one of its toughest phases since the 2G spectrum scam that rocked it at the start of the decade. At a time when a wave of consolidation has swept the industry following the launch of Reliance Jio, the industry’s pricing power has been falling continuously, with prices of data crashing 67 per cent over the past six months. This is bad news for the sector, where companies have already been grappling with falling revenues ever since the Mukesh Ambaniled Jio unleashed a price war offering its services practically for free till April this year. The profits of market leader Airtel, with a 34 per cent revenue market share, plunged 72 per cent to Rs 373.4 crore in the last quarter of 2016-17 as it slashed tariffs to retain customers, while Vodafone India’s operating profit for the financial year fell over 10 per cent. According to CLSA, a brokerage firm, India’s mobile industry revenue fell for the first time in FY 2016-17 to Rs 1.88 lakh crore and will decline further to Rs 1.84 lakh crore this fiscal.
Besides the squeeze in revenue, telecom service pro-
viders have also had to cough up high fees for procuring licences, pay spectrum usage charges to the government every year and instalments towards auction payments to the government every year as a percentage of their adjusted gross revenue. While the adjusted gross revenue grew a mere 6.8 per cent in fiscal 2016, payout to the government rose by 24 per cent. Reports say the telecom industry has bought spectrum worth Rs 3.45 lakh crore since 2010, partly on upfront payment and the rest on deferred payment till 2028-29. With the Idea-Vodafone merger, Tata’s reported plan to exit the telecom business and the now-aborted attempt by Reliance Communications, led by Mukesh’s brother Anil Ambani, to merge its telecom business with Aircel to pare debt, the sector is in the midst of a major churn. While the industry is steeped in Rs 5 lakh crore debt, Tata Teleservices alone has a debt amounting to Rs 34,000 crore and Reliance Communications, Rs 25,000 crore. The shakeout in the sector is impacting jobs, worsening an already grim scenario. While winding up Tata Teleservices would result in 5,000 jobs being lost, RCom has laid off some 1,200 people. Both Idea and Vodafone are planning to lay off staff by the thousands by the time their merger comes through. Overall, the telecom industry is set to lose around 150,000 jobs as it struggles to contain costs in an increasingly challenging environment. “The price war for data subscribers has dented the bottomlines of wireless telecom service providers, yet none of them is likely to pull a punch,” says a Crisil report.
If anything, competition will only heat up further given that market leadership is critical to the business. “It offers many advantages once the dust settles, as is borne out by profitability trends across the world. The leader typically commands a premium with higher average revenue per user (ARPU), a larger share of premium subscribers and relatively lower churn,” adds the report. But till the entire process of consolidation plays out, telcos will continue to be in deep trouble.
No comments:
Post a Comment