Are operators headed for a deluge?

A country with more than a billion people. A country in which almost everyone is a chatter box and loves to talk, in fact almost everyone here has an opinion on almost everything that goes on under the sun. It is little surprise then, that everyone who could afford to bid for a license to participate in the country's burgeoning mobile story, did so, the result: people with prior telecom experience such as Idea, Swan (Reliance) and Loop (Essar) were granted license along with many surprising bidders such as Datacom (Videocon) and Unitech, a consumer electronics and a real estate company! Also, companies like Idea and Spice got additional licenses to operate in circles which they did not have a presence in so far.
But the question is, are all of them confident of making money or are they just chasing a mirage? Consider a few of the facts:
1) India has the lowest call rates in the world.
2) India has amongst the lowest ARPU in the world.
3) Much of the future growth will come from rural India, hence the ARPU would in all probability further go down.
Hence it is quite an uphill task to actually make these businesses profitable, given that the fixed costs will be the same for all operators, incumbent or otherwise. For the initial roll outs, though the method of roll out would slightly differ.
1) For the passive infrastructure, the new comers, such as Datacom and Unitech, the proportion of shared sites would be much more than owned sites, hence reining in CapEx to some extent. However, some strategic sites will be owned and maintained by the operators themselves, typically in congested locations where commissioning of additional towers is difficult.
For companies like Idea and Vodafone. there is a slight advantage going for them with the formation of Indus, which will enable them to roll out their infrastructure faster.

2) Active Infrastructure Sharing is not permitted as yet. Besides, sharing of spectrum has been ruled out, hence bidders, who were expecting to sell the acquired spectrum to operators have been dealt a blow, especially with the 3 year lock in clause enforced by the DoT. Hence the cost of active equipment would remain more or less the same for all operators.

3) Retail Outlets, Showrooms and promotional expenses together would prove to be a major cost centre. All operators would have to differentiate themselves in every area of operations ranging from service quality to marketing effectiveness.
Operators offering a nationwide service would have an inherent advantage as a sizeable chunk of revenues are derived from the roaming subscribers. Airtel scores top marks as far as this is concerned.

Some of the strategies that operators may adopt while entering the market could be
1) Bringing in foreign partners (there are unconfirmed rumors of Unitech tying up with Systema of Russia and reports of Etisalaad committing 6 billion dollars for the Indian market)
2) Tying up with Virtual Network Operators to enhance appeal and get partners with a stronger brand recognition. TTSL has already done it by getting in Virgin.
3) Getting in location based services and localized content to relate more to the local user.
4) A greater emphasis on value added services
The government intends to get in at least 10 - 11 operators per circle in another year’s time. The question is: How many of them would continue to survive in 3 years time (After the lock in period is over)? Or will they sell out to bigger players/ merge with players of their own size?? Your guess is as good as mine.

Posted by :: Ameet Phadke