In this session on Financial Awareness we are going to see a topic which requires much needed attention now. You could have seen that Aircel – Reliance comm merger was failed, and as a result of piling losses Tata and Reliance comm set to exit mobile telephonE business and a lot of issues are going on the telecom sector.
We will be now exploring the reasons behind all these things, and will be looking at whether a solution is available to overcome this burden.
Indian Telecom Sector
India got its first Mobile Phone Services by 1995. Ever since the telecom Industry has never faced a situation like now.Far from being the poster boy of reforms, the telecom sector is currently going through the most painful period.
1. What is the Reason behind the fall?
The sector is reeling under mounting losses, a growing debt pile, irrational spectrum costs and high government levies.
2. Is there any Jio Effect ?
The entry of Reliance Jio, which has disrupted the market with low-cost data services, Jio has further compounded the woes of incumbent players.
The combined effect is that a number of operators, including Reliance Communications and Tata Teleservices, have been forced to exit their loss-making operations.
3. Who are all got affected?
The crisis has also severely impacted investors, lenders, partners and vendors of these telecom companies.
4. Will it affect consumers?
While the impact on subscribers has been limited thanks to mobile number portability, the bigger impact has been on employees.
5. What can Employees do after the telecom slide?
In the last year alone over 10,000 jobs have been cut as operators try to bring down costs. The situation is expected to worsen in the next 6 to 12 months as there are more operators in the market facing an uncertain future.
6. Is there any alternative to the employees laid off?
Unfortunately for the people losing their jobs, the hiring scenario in other hitherto employment-heavy sectors like IT and e-commerce is bleak. While those in marketing or sales functions can move to sectors such as FMCG, telecom engineers and those on the technical side could be left in the lurch.
7. Isn’t Indian Telecom Industry Growing?
Ironically, all this is happening at a time when the Indian telecom sector is at the cusp of a major data revolution. Only 40 per cent of the country’s population has access to internet which means there is a huge demand for telecom services going forward.
8. What stops Telcos to incur losses?
Telecom operators will be required to invest heavily in rolling out 4G networks for which capital and human resources will be required. But this silver lining can become reality only if some immediate steps are taken both by the industry and the Centre.
9. What can be done by Centre Govt to stop this?
1. The Government needs to lower the financial burden on operators. Apart from the nearly ₹5-lakh crore operators have bid to buy spectrum, they also have to pay annual levies like spectrum charges and licence fees, together amounting to nearly 30 per cent of their revenues. Given the enormous investments needed in the sector, these levies need to be brought down drastically.
2. Second, the Centre must rationalise spectrum pricing. Forced expensive bidding puts the operators’ financials in a mess. While the auction mechanism must be retained, the Government should rethink the floor price especially for the 700 MHz band — critical for data services.
3. Finally, exits and mergers need to get easier so that strong players are able to absorb weaker ones without destruction of value and assets created.
10. What operators can do to find their way to profitable?
Operators, on their part, should start creating new revenue streams. The days of offering plain vanilla voice telephony service are over. The demand for data services is set to expand rapidly in the coming years. This provides an opportunity to revive the sector over the next 12-18 months.
I hope this session on decoding the Editorial of THE HINDU BUSINESS LINE would helped you to understand why Telecom Companies making losses inspite of charging heavily for your data or voice calls.