Once the poster boy of Indian economy, the telecom sector is now losing its charm. This, despite the fact that it has contributed as much 6.5 per cent to the GDP, a number expected to go up to 8.2 per cent over the next three years.
The telecom industry is facing its worst phase ever. Telecom companies together carry a debt of almost five lakh crore rupees, with revenues of less than Rs 1.8 lakh crore — and steadily falling. If one takes into account loans from domestic banks, overseas borrowings and annual spectrum installments are pegged at nearly eight lakh crore rupees.
The huge debt is the result of multiple reasons. High levies imposed on the sector is one of them. The levy on the sector is in the 30 per cent-plus range, whereas in other South Asian countries such as Pakistan, Bangladesh and Sri Lanka, the levies are in the 20 per cent range.
Successive spectrum auctions over the past seven years — aimed at increasing Government revenue — also contributed to the sector’s health. The price of spectrum in India is one the highest in the world and telecom firms have no option but to participate in these auctions.However, many companies are finding it extremely difficult to recover the crores of rupees spent through auctions at a time when tariffs have plunged. In India, the average revenue per user (ARPU) is a measly two dollars a month — which is among the lowest in the world.
The entry of Jio has added to the problems of existing players as their primary revenue earner — Voice, accounting for over 80 per cent of revenue— was suddenly being given away free.
The industry is trying to counter these setbacks by consolidating. Vodafone India and Idea are likely to complete their merger by March next year. While Bharti Airtel has acquired Telenor’s business, RCom plans to shut down its 2G and 3G wireless operations and voice call services by November 30.
The Tata Group is selling its mobile business to Bharti Airtel, which might lead to some job losses. In June, RCom chairman Anil Ambani said, “The country’s telecom sector had cut 10,000 jobs last year, and the ongoing stress would further lead to reducing 30,000-40,000 jobs more this year.”
When asked about the jobs that could be lost when companies such as RCom shut shop, Minister of State for Telecommunications Manoj Sinha said, “There is no problem of jobs. Look at the number of stores being opened by Jio. To say that jobs are reducing is untrue and far away from the truth.” He said rapid consolidation would stabilize the sector, and that the entry of Reliance Jio had in fact added to employment. But such optimism is still to be tested.
No solid promises can be sought after until unless a good amount of change is seen in the actual field of Telecom and Service sectors. Till then, the marketing heads must take wise calculated decisions before making a move.