Telecom: Bursting with dynamism - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Telecom: Bursting with dynamism

Aug 17, 2002

Free competition, as they say, has its own merits and demerits. If one still wonders what is the appeal of deregulation, the Indian telecommunication sector is a typical case study to understand its pros and cons. Ever since the National Telecom Policy 1999 was framed, the communication infrastructure in the country has improved by leaps and bounds. So has the subscriber base in all segments. However, there is a still a long way to go. Consider the segment-wise performance in brief. The change is palpable in the cellular segment where increased competition has led to a robust growth in subscriber base, on a monthly basis. India’s mobile subscriber base, as of June 2003, stands at 7.3 m as compared to 4.1 m in the corresponding period previous year. This translates into a growth of 78%. Growth has accelerated after the entry of third/fourth player in select circles like Tamil Nadu, Calcutta and UP. After the entry of an additional operator, incoming calls have literally become free of cost and fall in tariffs is expected to further add to robustness in subscriber base growth in coming months.

Progress on the basic and other segments like DLD is also heartening. India’s basic subscriber base is estimated at around 38.5 m mark, which translates into a growth of around 17% YoY. The Department of Telecommunication has set a target of adding further 3 m subscribers in FY03 of which already 257,833 basic connections have been installed in 1QFY03. With private players like Hughes Tele, Tata Tele and Bharti expanding their network at a faster clip, one will not be surprised if the target is achieved with a comfortable margin. Infact, after falling way below target, target in June 2002 of 120,000 subscribers was overshot by 20,630 connections.

Basic telephony-On the rise…
(Nos) Target Achievement % of target
Apr-02 90,000 52,844 58.7%
May-02 90,000 64,359 71.5%
Jun-02 120,000 140,630 117.2%
Total of the above 300,000 257,833 85.9%
FY03 target 3,000,000 257,833 8.6%
Source: DTS

Though subscriber base has been growing at an impressive rate, not many players are expected to survive. As we move forward, integrated telecom majors will have an upper hand over others. Why is it so? One is obviously the advantage of bundling services to a customer at competitive rate to gain advantage over peers. For instance, Bharti can bundle its basic, international and domestic long distance telephony along with broadband whereas the same may not be the case with Reliance at the current juncture. Not only is cost of providing such services are important, reliability also would gain significance when choosing a service provider. This is true for corporate segments like call-centres and software companies that need 24x7 bandwidth availability. Though the aforesaid factors are non-issues at the current juncture, they would differentiate service providers in the long-term.

Bharti, Tata, BSNL and Reliance are expected to dominate the scene in the future. Bharti is currently the only integrated player with presence in almost all segments viz. basic, cellular, Internet, broadband and long distance services. Tata’s, with the acquisition of VSNL and with stake in IDEA Cellular, are moving towards this direction. BSNL, apart from its commanding presence in basic services, has recently launched cellular services in select cities.

Current status…
(m) FY01 FY02 % change
No. of DELs 32.7 38.5 17.5%
– Public 32.4 38.0 17.0%
– Private 0.3 0.5 85.2%
Rural DELs 6.7 9.0 34.8%
PCOs 0.8 1.1 27.1%
Internet subscribers 3.0 3.2 7.7%
Source: DoT

Reliance however, is yet to make its mark, although its optic fibre backbone is running full steam. Reliance Infocom seems to have run into some rough weather off late, with Qualcomm planning to pull out. Apart from backbone infrastructure, there is lack of clarity on its telecom strategy. It seems that the management is currently focusing more on integrating IPCL’s operations with Reliance apart from preparing for BPCL/HPCL bidding. But still one cannot ignore Reliance.

One of the key issues facing private sector players is the sheer dominance of Bharat Sanchar Nigam Limited (BSNL). The PSU major has almost 35 m basic telephone connections that account for as high as 81% market share. Any player of this magnitude in the telecom sector is bound to dominate the proceedings, which is what is happening currently. The company can arm-twist any private basic/cellular/ILD/DLD provider to provide services at a significantly lower price and demand higher revenue share. To address this issue, there is a section in the telecom sector that has called for splitting BSNL into regional units in order to provide an equitable ground for the private sector. This seems like a logical move. But practically speaking, it is unlikely keeping in mind the protest raised during BSNL’s corporatisation.

However, glitches in the regulatory environment continue to remain a dampener. Not that the regulators are totally unaware of the current scenario! Given the uncertainty on the regulatory environment like carrier access code and lack of proper interconnect regime, the roll out plans of new entrants could be affected. The recent saga on the DLD front is a clear case. Already Bharti’s DLD plans have been affected due to its tussle with BSNL, given the latter’s dominance in the sector.

In a recent telecom conference, most of the industry leaders commonly agreed on one term. Before finalising terms on issues like revenue share and CAC, why not propose an interim regulation, which would provide some breather for all players in the sector? The interim regulation could encompass all basic requirements like revenue share between basic/cellular and DLD service providers and interconnection requirement. Infact, based on this interim model and its effectiveness, a final conclusion could be arrived at a later stage.

But at the same time, it should not sound like private sector players should be the favored lot. The role of regulator is to make sure that all players irrespective of public or private adhere to norms. This is the not case currently. Or so it seems. MTNL and BSNL seem to dictate terms in light of their commanding stand in the sector currently. The need for the hour is a regulator, which facilitates growth based on equitable ground. If this is done, there is no looking back for the Indian telecom sector.


Equitymaster requests your view! Post a comment on "Telecom: Bursting with dynamism". Click here!

  

More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE TECK


Sep 22, 2020 (Close)

S&P BSE TECK 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS