Running a Telecom Business in India isn’t easy. Now at the end of 15th year, starting from year 1995, the space has become more crowed, highly competitive and little profitable. Realization- Someone or at least few must die death to keep others alive.
A recently published news story by Economic Times gives us slightest of the hint of impending upheaval. Certainly, there’s huge pressure on startup telcos to remain profitable due to amount of investments made during launch years. And if you join at number 12, 13 & beyond, you know how tough it would be to make presence felt and earn some cash.
In June this year, Forbes India ran a cover story on Indian telecom Sector. It read – ‘The End of Telecom Business in India’. It’s classical funny case study. Even tough telcos are adding 2 million subscribers per month, profit margins are falling steep. Other indicators like ARPU, EBITDA have consequently eroded to an extent, where now operators are seeking regulator’s help to remain profitable. What’s next?
Take the latest example of Videocon Mobile. After launch of its GSM service in 2009, the owner wants to sell majority of stakes in company. Realizing the hard fact that, swimming the shallow waters of contracting telecom cash reservoir isn’t easy, the best way is – exit before its too late.
It’s no surprising. Even when consumers are enjoying cheapest mobile tariffs in the world, telecom companies are finding hard to cope with increasing operational costs and price burden. The pricing pressure is even higher on those, who won 3G/BWA Spectrum and now aiming to roll out services by the end of next year. According to experts, this amounts to additional $750 million cost, shooting cost per subscriber to Rs 1872.
The exit route is pain too. You have to surrender the spectrum to authorities and get cash back. Or sell majority of stakes to interested parties. DoT has to relax its M&A norms, in which new entrants are banned from selling their business within 3 years of launch. Companies like Swan (Etisalat DB), who has yet to roll out services in majority of circles, has earlier enjoyed the relaxed norms, benefited from selling stakes to foreign entities by virtue of holding just spectrum. Now when M&A norms are tightened, company is again seeking help- this time to exit. Same is true for other late entrants like Uninor, Videocon etc.
Who would buy their stakes? With mere 0.3{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} market share of Indian Telecom sector, Videocon’s exist route is even harder. Most of them have yet to establish their operations in majority of circles and hold least market shares. This makes them least preferred for potential buyout. Moreover, according to DoT norms, merged entity has to give away the spectrum.
Then question arises- what’s the benefit of buying stakes in Videocon, Uninor, Etisalat DB et al? They neither have subscribers nor presence. Now, if merged entity has to surrender spectrum then fate of these companies looks even bleaker.
Whatever may happen to the sector, DoT must understand one simple fact- the sector can survive only if number of players in market are restricted to certain number. Allowing more players to enter had negative impact on entire telecom ecosystem. There’re still few ways to allow graceful exit of few newest operators, giving more breathing space to others. It’s must or let the entire sector die death!
