What more great performance can be expected from s sector when the world economy as well as Indian economy was making a turn around from the dark worlds of recession? Telecom is the sector I am talking about .This sector has done a fantastic performance in 2009 which makes Indian economy more proud.
India’s telecom sector has reached a major milestone recently with the country’s mobile user base surpassing 500 million. More over it’s boosted by a staggering 17.7 million new activations in Nov 2009.When we dig further in to the performance growth of the telecom sector in India we get some strong impressive figures which depict India have a huge untapped potentiality in 2010 and beyond.
According to the Telecom Regulatory Authority of India (“TRAI), India’s mobile customer base crossed 506 million at the end of November.
• Currently, 43 out of every 100 Indians own a cell phone. Including roughly 37 million fixed lines, India now has a total of
543 million telephone lines, a penetration rate of around 46%.
• There is considerable headroom for growth given the under penetrated rural regions.
BUSINESS GROWTH
When we dig more to find out the industry leaders in this growth journey of Indian telecom in 2009 we find:
• Privately held telecom operator Bharti Airtel remains the market leader with roughly 116 million mobile customers recorded at the end of Nov 2009 (latest data till now) while Reliance Communications is at 91 million and Vodafone Essar is at 88.6 million).
• Tata Teleservices, a joint venture between NTT DoCoMo (DCM) and India’s Tata Group, continue its journey with the maximum number of new customers with 3.3 million in November.
• Idea Cellular also had a strong period with 2.5 million new additions.
• State-owned mobile operator Bharat Sanchar Nigam Ltd (“BSNL), added up in 1.4 million new subscribers for the month.
THE COLLTERAL DAMAGE
All we find contribution from all ends but with a very stringent and turbulent competition. In 2009 we also got a new package for calling say ‘Pay Per Second’. Now this has been a price boon for consumers and a desperate high level curse for companies’ profitability. The first of this was brought by DOCOMO. Now it’s very hard to say that how much they earned from this cheap price but one thing which became very clear that it created a dead end for Indian telecom industry growth in the coming days. Where in order to maintain profitability one has to increase a 3 times more sales figure on consumer addition from normal times. Now this is quite difficult even though there is scope of growth of increasing consumers. India’s mobile sector is characterized by aggressive price competition.
3rd QUARTER EXPECTATIONS
So we should not be surprised to see a drop in profit margins of telecom companies in the 3rd quarter. Consumer addition figures will not improve the profitability in this quarter of 2009-10.Since prices have been reduced by 1/3 of what it was a year back. Indian telecom industry growth is now dependent two factors.
• By overseas expansion since that will add more subscribers.
• 3G auction will give new dimension to dominate the domestic market and scale to new heights of Indian telecom business.
Despite of all these the Telecom Regulatory Authority of India had recently asked Telco’s to make presentations on their respective tariffs, to determine the business feasibility of such rates, This is required for to protect the interest of the shareholders.
The FDI into telecom sector was up 5.9% during the period. Apart from adding up new subscriber base Indian telecom has been partly in doldrums particularly with 3g auction matters. Reliance communication was also merged with problems followed with a fail deal of Bharti and MTN. But still at the end of the year 2009 Bharti bagged the deal of Dhaka-based Warid Telecom International.
HOPE OF RAY
But we don’t find any light coming from the darkness created by Pay Per Second where the companies profitability is at high stake. It’s advised to stay away from the sector from any kind of investments in the short as well as long term. Once the issues of 3g get processed and completed then only it’s viewed to be a good decision fro investments. The Indian telecom industry will remain under stringent competition and price pressure which will affects the shareholders but once 3g auction takes places Indian telecom industry will again rise to be one of the fastest growing industry than any one else in the long run. Till then operators will face challenges to protect their market shares.
Author:- Indranil Sen Gupta
Financial, Economic Writer and Research Analyst
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