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Impact of Recession On Telecom
Impact of Recession On Telecom
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INTRODUCTION
Exactly ten years ago, Jyoti Basu in Calcutta called Sukh Ram in Delhi in what was the first
mobile phone call in India. Brick sized cell phones used to cost Rs. 45,000 and each call
costed Rs. 16.5/minute. Back then, cell phone was a status symbol. Today, there are over 60
million mobile connections in India (expected to double in number in next 12 months). A
local call costs around less than Rs 1/min and a cell phone can be purchased for less than Rs.
2000.
India is the fourth largest telecom market in Asia after China, Japan and South Korea.
The Indian telecom network is the eighth largest in the world and the second largest
among emerging economies.
The Indian telecom market size of over US $ 8 billion is expected to increase three fold
by 2012. The expansion of the telecom industry in India has been fuelled by a massive
growth in mobile phone users, which has reached a level of 10 million users in December
2002, an increase of nearly 100 per cent in 2002.
The Indian telecom sector can be broadly classified into Fixed Line Telephony and
mobile telephony. The major players of the telecom sector are experiencing a fierce
competition in both the segments.
The major players like BSNL, MTNL, VSNL in the fixed line and Airtel, Vodafone
(Hutch), Idea, Tata, Reliance in the mobile segment are coming up with new tariffs and
discount schemes to gain the competitive advantage.
The Public Players and the Private Players share the fixed line and the mobile segments.
Currently the Public Players have more than 60% of the market share.
Mobile phone providers have also come up with GPRS- enabled multimedia messaging,
Internet surfing, and mobile- commerce.
The much-awaited 3G mobile technology has entered in the Indian telecom market.
The GSM, CDMA, WLL service providers are all upgrading them to provide 3G mobile
services.
Radio services have also been incorporated in the mobile handsets, along with other
applications like high storage memory, multimedia applications, multimedia games, MP3
Players, video generators, Camera's, etc. The value added services provided by the mobile
service operators contribute more than 10% of the total revenue.
The 2009 budget has brought further relief to the customers with the reduction in the
tariffs, both local and long distance, and with slashing down the roaming rentals. This is
likely to lead to even more people going for cellular services and more and more use of the
value added services.
However, landline telephony is likely to remain popular, too, in the foreseeable future.
MTNL, the largest landline service provider, has recently taken some bold initiatives to retain
its market share and, if possible, expand it.
OPPORTUNITIES:-
India offers an unprecedented opportunity for telecom service operators, infrastructure
vendors, manufacturers and associated services companies. A host of factors are contributing
to enlarged opportunities for growth and investment in telecom:
an expanding Indian economy with increased focus on the services sector
Investors can look to capture the gains of the Indian telecom boom and diversify their
operations outside developed economies that are marked by saturated telecom markets and
lower GDP growth rates. COMPETITIVE LANDSCAPE:-
Large companies have big economies of scale in providing a highly automated service to
large numbers of customers, and have the financial resources required to build and maintain a
large network.
Raja said that India would surpass the target of 500 million connections well before 2010.
However, the minister added that the telecom growth in rural areas has not kept pace with
that of urban areas. While the government is working hard to correct this imbalance by
shifting focus to small towns and rural areas, there is still a long
long way to go in bridging the
rural urban divide. He said that the government's decision to allot licences to more operators
was directed at raising competition, lowering tariffs and enhancing rural teledensity.
The minister was speaking at the curtain raiser for India Telecom 2008, scheduled from 11 to
13 December with the theme of “Connecting Rural India”. The event is being organised by
the department of telecommunication in partnership with Federation of Indian Chambers of
Commerce and Industry (FICCI). In his keynote address, the minister of state for
communications and IT, Jyotiraditya Scindia, asked for special emphasis on manufacturing
and R&D and new business models to achieve the main objective of higher rural teledensity.
Indian telecom sector, which has so far remained untouched by the slump in the global
economy, could see the growth rates slowing down by the end of the year. Thanks to
households postponing spending, the growth rate of mobile handsets could fall by as much as
50 per cent and also see a decline in new subscriber additions compared with 10 million new
subscribers a month at present.
According to Mr Prashant Singhal, telecom industry leader at Ernst & Young, the handset
sales growth in 2009 is expected to be in the region of 13-15 per cent, down from 26 per cent
last year.
“Yes, the Indian telecom industry has been impacted to some extent by the current global
slowdown. In the current economic environment, many corporates are re-negotiating the rates
they pay to telecom operators. Though subscriber numbers are still growing at well over 10
million a month, revenues are not rising commensurately. Also, it will be a challenging
market for mid- to high-end handset makers this year. In high-end phones, sales will be
defined more by need rather than desire of the user.”
While most operators claim that the telecom growth story is intact for another 3-4 years, they
privately admit that the liquidity crunch may have an impact in 2010. “Most of the growth in
mobile usage is coming from non-urban areas driven by a large population of employed
youngsters. However, if the liquidity crunch continues then these youngsters may not find
employment easily, which in turn will impact their expenditure on communications services,”
says a Mumbai-based multinational GSM operator.
Though the industry is not losing sleep yet, they are undertaking cost-cutting measures such
as infrastructure sharing and internal restructuring. “Reflecting its proactive approach,
Ericsson has had a cost reduction programme in place since 2008 which well exceeded set
targets. The present economic condition is helping us drive better focus across the various
teams and functions internally. Conscious decisions are being taken to curb costs by
increasing the use of Web effectively - through webinars and Web conferences, thus
seamlessly connecting across geographies and different time zones. However, we expect the
telecom scenario in India to be in growth mode for the next few years,” says Mr P. Balaji,
Vice-President (Marketing & Strategy), Ericsson India.
However, some of the players completely rule out any impact on telecom.
“Look at it from the customers’ perspective — slowdown or not, they need a communication
device under all circumstances; to share their thoughts, worries, good news or even for a
general discussion. So, the demand for telecom services remains strong, and that is evident in
the strong growth that the sector continues to enjoy. In fact, telecom usage in innovative ways
is actually increasing through the long-drawn recession, as it becomes a cost-effective
alternative to business expenses such as travel and lodging, etc,” says a spokesperson for Tata
Teleservices.
But Mr Singhal sounds cautious. “This is a time for telecom operators to take a close look at
their internal structure. In the last couple of years of sharp growth, large operators have added
between 3,000 and 7,000 new employees. This is an opportunity for such operators to look to
achieve a greater level of efficiency in their operations.”
Market watchers point out that the onus will be on the new government to launch next
generation reforms in the telecom sector to sustain the growth story. “A large number of
policy initiatives, which could have helped the industry to overcome the current economic
crisis, are awaiting Government approval. There should not be any more regulatory
uncertainties,” says a Delhi-based telecom player.
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