Telecom: Malnourished and ill-treated - Views on News from Equitymaster

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Telecom: Malnourished and ill-treated

Nov 7, 2007

The government has again done what it is best at - setting up committees to delve into issues that require urgent attention but decisions on which are delayed by the way these committees work! This time, a committee has been set up to review spectrum allocation norms for the Indian GSM mobile service providers. One would do well to recollect the recent stand-off between leading GSM service providers and the Department of Telecommunication, whereby the latter, following recommendations of the Telecom Engineering Centre, substantially increased the subscriber base criteria for releasing additional spectrum to the service providers. This would have made it more difficult for the GSM companies to get additional spectrum as the subscriber base targets set by the TEC were not achievable for at least the next 4 to 5 years. This would have meant a further degradation in service quality as more and more subscribers used a limited amount of spectrum. Thus, the committee set up by the government to review the TEC norms shall provide some fresh air of hope for the GSM lobby - the report is to be submitted by the end of this month.

As reported by Business Week some time back, India's rise as a mobile phone mega-market has come at a time of market saturation in Europe, Japan, and the US. And this has led to global handset makers like Nokia, Motorola and LG queue up to the country for setting up handset manufacturing units. All see emerging markets such as India as key revenue drivers for the industry in the years ahead. The trick in India is positioning stellar brands at the low end of the market. Nokia, for instance, sells about 45 models in India. Yet its biggest seller, accounting for 15% of sales in India, is the basic 1100 model for as low a Rs 2,000 (US$ 50) that is turning heads in rural areas. In similar line, Motorola is planning to launch a handset for under US$ 30 apiece. Do we say more of the potential that the Indian telecom market holds? Telecom service providers like are seeing that (rural) opportunity, and this, we believe will be the growth driver going forward.

However, resource (spectrum) constraint, if not tackled properly by the regulator and the government, can emerge as a big thorn in the flourish of this growth story. Till the time the committee files its recommendations with the government, GSM service providers can keep their fingers crossed.

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