We should leapfrog our way out of the telecom mess

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Sundeep Khanna

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Any way you look at it, Big Telecom’s race in India is run. A price rise or two might help shore up their finances temporarily, but in the long run, operators will have to radically alter their business plans to survive. Even a bailout on the adjusted gross revenue (AGR) dues will only offer a partial reprieve. Don’t forget, Vodafone Idea’s spectrum dues to the government are 88,000 crore, while those of Bharti Airtel are 45,000 crore. This is on top of the cost of servicing the huge debt pile amounting to nearly 2.2 trillion between the two.

Jio has circumvented the debt problem with parent company Reliance Industries Ltd (RIL) announcing that it would take over debt worth 1.08 trillion from its telecom subsidiary, in exchange for an equity investment of the same amount. That still doesn’t alter the need to post reasonable returns on the investment. At current tariff levels, it is clear even Jio isn’t going to be making too much money from regular telecom services, which is why it has tried to position itself as a content-cum-entertainment platform.

Alarming as it seems, the decline in the fortunes of Indian telecom is no different from the worldwide trend in the sector, with the rising tide of the 1990s ebbing over the last 10-15 years. For over a decade now, growth rates of telecom companies around the globe have been stagnating in the face of declining average revenue per user. This follows a change in the revenue mix, with voice and messaging losing out to digital and video streaming services. A 2018 Juniper study estimated that annual global operator-billed revenues from voice and data services are expected to fall from $837 billion in 2017 to $785 billion in 2022.

Overall, the return on capital employed for global telecom services dropped from over8% in 2007 to about 5.5% by 2017, according to S&P Global Market Intelligence. Despite growing revenues, higher operating costs have squeezed margins.

The hand-wringing in India over the fate of the sector is a bit exaggerated. The real danger is that amid the present financial grief of the two older firms, the big sufferer could be the consumer. If Vodafone Idea were to shut shop, the consequent danger isn’t just the emergence of a duopoly, but the real possibility that the remaining firms will just stop investing in enhancing customer experience. What’s more, if Vodafone exits, would Airtel’s and Jio’s stretched networks be able to absorb its subscribers?

A duopoly of Bharti Airtel and Jio would mean two parallel high-cost networks with no incentive or pressure to reduce prices significantly or invest in newer technologies. That’s never been a healthy situation in any market. Thus, for years, Pepsi and Coca Cola rested content in their cosy duopolistic universe with a combined 75% market share, happy to trade marketing and advertising salvos without feeling the need for any major innovation that would require large capital outlays. It wasn’t until small producers launched other fruits-based drinks that the cola giants felt the need to revamp their own portfolios.

In such a scenario, what’s a government to do? Surely, governments must ensure consumers have choices and get the best available services. If the current set of providers are unable to provide the latest and the best that is technologically feasible, now may well be a good time to offer them incentives to induct newer technologies. The government could push for any operator to take the lead in 5G by giving away spectrum at concessional rates or even free. 5G isn’t about voice or data, but about Augmented and Virtual Reality, smart cities and the Internet of Things (IoT), all of which offer a base for new markets to spring up that could be a source of large future tax revenues for the government.

If it is bolder, it could also look a little beyond and incentivize telecom companies that demonstrate a willingness to explore 6G technology. After all, China has already launched research and development work for 6G mobile networks, coinciding with its roll-out of 5G services. Researchers Razvan-Andrei Stoica and Giuseppe Thadeu Freitas de Abreu from Jacobs University Bremen, in a highly-cited paper titled 6G: The Wireless Communications Network For Collaborative And AI Applications say that Artificial Intelligence will be the main driver of mobile technology in the future and that 6G will be the enabling force behind an entirely new generation of applications for machine intelligence.

For too long, the government has sat back and let the industry do all the running, while merely collecting rent on its assets. Now, it needs to do more than just that. In the 1990s, when the then government looked at the sector, it realized the need for large-scale change. It is now forgotten that it backed several ideas at the same time, including a nascent paging industry. Soon, the early promise of paging fizzled out under similar financial stress for some of its principal proponents. Yet, the ensuing despair was swiftly replaced by the promise of the emerging cellular technologies, eventually leading to the mobile phone revolution that has arguably been the driver of much of India’s growth in the first 15 years of this century.

A similar transition lies ahead and, instead of focusing exclusively on alleviating the pain of incumbent companies with special schemes and packages, it would be worthwhile to scout the globe for technological innovations in the area and create conditions to fast-track their entry to India.



via LiveMint

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