Telcos: Call for more growth
The liberalisation of the Indian telecom sector has been one of the most successful ones and has lead phenomenal growth since the late ’90s. Today, the country boasts of being one of the five largest networks in the world.
By Prashant Singhal, |
The liberalisation of the Indian telecom sector has been one of the most successful ones and has lead phenomenal growth since the late ’90s. Today, the country boasts of being one of the five largest networks in the world, with 20% telecom penetration level and staggering net additions in the range of 6 million mobile subscribers per month.
While the growth has thus far been largely limited to the affluent urban pockets of the country, the next wave of growth is slated to come from rural areas. Riding on the enormous population which resides in these untouched regions, the government and the industry stakeholders expect the country to double its penetration levels to 40%+ by the close of 2010.
While the country has one of the lowest tariffs in the world and has witnessed a steady decline in the average revenue per user (ARPU) levels in the past few years, it is worth contemplating what the effects of further expansion would have on the margins of the operators.
At present, large Indian operators can be said to have much lower earnings before interest, taxes, depreciation and amortization margins as compared to their Asian peers. Having said that, it is important to highlight the fact that the regulatory impositions including levies such as license fees, spectrum charges, access deficit charge (ADC), service tax, etc. on the Indian service provider stand at a whopping ~30% and is much higher than those experienced by its counterparts in the other countries, thus explaining the visible and much talked of gap.
Hence, going forward, the government’s intervention by way of rationalising this burden together with introducing a single levy mechanism could play a crucial role, leading to more affordability of telecom services by the masses by way of tariff reduction.
However, if the present situation were to continue for the next few years, the operators could still expect an increase in their margins, owing to the scale of growth and the opportunities available in the vast untapped territories. The volumes of net additions that are expected would negate the effects of falling ARPU coming out of the marginal low value users. The industry expects large Indian telcos to witness revenue growth at the rate of 20-25% uptill 2010, rendering ARPU measurement redundant.
In terms of the effects on costs, operators are expected to increasingly resort to sharing of infrastructure, thus controlling their capital as well as operating expenditures, further justifying the rollout in the Indian hinterland. Additionally, the falling costs of the unshared electronic components will further benefit the operators’ attempt at overall cost control.
Operators would also need to further outsource or centralise a range of non-core activities such as billing, customer relationship management (CRM) and finance functions bringing in more avenues for effective cost-saving mechanisms.
Having dwelt upon the predominant mobile growth prospects of the players, it is worth mentioning the ancillary opportunities at an operator’s disposal today, and ways of unlocking its future growth. Operators would be seen devising newer avenues of improving their topline, thus leading to the stickiness of its end consumer. Currently, the leading set of players offer all communication services covering basic, fixed line as well Internet, which leaves them with the enormous scope of introducing bundled services by way of triple play and ensuring a larger share of the end consumer’s wallet.
Additionally, operators could also capitalise on their assets such as their expansive retail network and owned call-centre functions. These could be invaluable cost-saving mechanisms if let out to other non-telco businesses, as it would enable them to ride on the merits of such well-tested establishments rather than building their own from scratch.
Another opportunity which has emerged in a big way today is that of the tower business. With the required number of 3,30,000 towers by the end of 2010, operators have come to realise the potential of their tower assets and have begun spinning off their infrastructure activity into separate businesses.
All these reasons put together have led to the upbeat sentiment in the telecom market, which is further supported by the fact that the enterprise multiples of the Indian telcos are one of the highest in the globe today and are expected to continue being this way in the years to come.
Hence, owing to the unprecedented scale of growth available coupled with new opportunities in the telecom space, the Indian sector is now well on its way towards kickstarting its next phase of revolution.
(Telecom industry leader Prashant Singhal Ernst & Young, India)
While the growth has thus far been largely limited to the affluent urban pockets of the country, the next wave of growth is slated to come from rural areas. Riding on the enormous population which resides in these untouched regions, the government and the industry stakeholders expect the country to double its penetration levels to 40%+ by the close of 2010.
While the country has one of the lowest tariffs in the world and has witnessed a steady decline in the average revenue per user (ARPU) levels in the past few years, it is worth contemplating what the effects of further expansion would have on the margins of the operators.
At present, large Indian operators can be said to have much lower earnings before interest, taxes, depreciation and amortization margins as compared to their Asian peers. Having said that, it is important to highlight the fact that the regulatory impositions including levies such as license fees, spectrum charges, access deficit charge (ADC), service tax, etc. on the Indian service provider stand at a whopping ~30% and is much higher than those experienced by its counterparts in the other countries, thus explaining the visible and much talked of gap.
Hence, going forward, the government’s intervention by way of rationalising this burden together with introducing a single levy mechanism could play a crucial role, leading to more affordability of telecom services by the masses by way of tariff reduction.
However, if the present situation were to continue for the next few years, the operators could still expect an increase in their margins, owing to the scale of growth and the opportunities available in the vast untapped territories. The volumes of net additions that are expected would negate the effects of falling ARPU coming out of the marginal low value users. The industry expects large Indian telcos to witness revenue growth at the rate of 20-25% uptill 2010, rendering ARPU measurement redundant.
ADVERTISEMENT
In terms of the effects on costs, operators are expected to increasingly resort to sharing of infrastructure, thus controlling their capital as well as operating expenditures, further justifying the rollout in the Indian hinterland. Additionally, the falling costs of the unshared electronic components will further benefit the operators’ attempt at overall cost control.
Operators would also need to further outsource or centralise a range of non-core activities such as billing, customer relationship management (CRM) and finance functions bringing in more avenues for effective cost-saving mechanisms.
Having dwelt upon the predominant mobile growth prospects of the players, it is worth mentioning the ancillary opportunities at an operator’s disposal today, and ways of unlocking its future growth. Operators would be seen devising newer avenues of improving their topline, thus leading to the stickiness of its end consumer. Currently, the leading set of players offer all communication services covering basic, fixed line as well Internet, which leaves them with the enormous scope of introducing bundled services by way of triple play and ensuring a larger share of the end consumer’s wallet.
Additionally, operators could also capitalise on their assets such as their expansive retail network and owned call-centre functions. These could be invaluable cost-saving mechanisms if let out to other non-telco businesses, as it would enable them to ride on the merits of such well-tested establishments rather than building their own from scratch.
ADVERTISEMENT
Another opportunity which has emerged in a big way today is that of the tower business. With the required number of 3,30,000 towers by the end of 2010, operators have come to realise the potential of their tower assets and have begun spinning off their infrastructure activity into separate businesses.
All these reasons put together have led to the upbeat sentiment in the telecom market, which is further supported by the fact that the enterprise multiples of the Indian telcos are one of the highest in the globe today and are expected to continue being this way in the years to come.
ADVERTISEMENT
Hence, owing to the unprecedented scale of growth available coupled with new opportunities in the telecom space, the Indian sector is now well on its way towards kickstarting its next phase of revolution.
(Telecom industry leader Prashant Singhal Ernst & Young, India)
Start a SIP with as low as ₹500 with ET Money App!
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
