Telecom operators will have to think beyond 'minutes' and learn new tricks, or get out of the game
When 3G auctions were over on May 19, there was little fanfare to herald the new era in telecom, that of super-fast video downloads or electronic gaming possibilities. The mood across most operator camps — Bharti, Vodafone, Idea and even Reliance — was sombre rather than jubilant. Bharti even put out a sullen press release blaming everything from the auction format, spectrum shortage to policy uncertainty for its inability to win pan-India 3G spectrum. Vodafone’s head of strategy, Samaresh Parida, says, “Due to artificially constrained supply, the 3G auction prices were driven much higher than
expected. While the government garnered huge amounts from the auctions and the sector shares substantial revenues with it, I fear that the industry’s future could be in trouble because of high spectrum prices, large number of competitors and lack of incentives to consolidate.”
That’s putting pressure on the financials because the cost of manufacturing that minute is not declining too much. “Earlier the profit per minute was never ever calculated. Now companies are looking at that metric as well, otherwise the numbers don’t make sense. Managers who were judged only on subscriber addition earlier now have to deliver profit per minute as their key parameter. Many people have been fired in the bigger companies on that account,” says Shetty of KPMG.
But what the government gave away it got back in return. Since the existing operators had not been able to keep their bargain and pay upfront, they had to agree to more competition being let loose in the industry. As a result, India now has 12 and sometimes 15 competitors in one circle. Now clearly competition is good. It keeps the companies sharp and benefits consumers. However, all aspects of the market have to be working at optimal levels for competition to have desired effects. In India, two aspects: Supply of raw material that makes “minutes”, namely spectrum is severely constrained. And two, it is very difficult for people get out of business. As a result, what we have today is an industry that usually thrives on scale having the feel of a small scale sector.
Consider some proposals. A merged entity cannot have more than 30 percent market share nationally. The total spectrum held by a merged entity cannot exceed a certain point, which is not very high. “How can you decide on 30 percent? It is just not comprehensible. And if I have to return spectrum then why should I merge?” asks a telecom industry veteran.
New Ways to Compete
(This story appears in the 18 June, 2010 issue of Forbes India. To visit our Archives, click here.)