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Straight from the Specialists

Indian telecoms at the crossroads again

August 5, 2013

(The views expressed in this column are the author’s own and do not represent those of Reuters)

In the 18 years I have been working with Indian telecoms operators, I can recall several points where I felt the industry was at a crossroads in its evolution.

The first was the introduction of the national telecoms policy in 1999 and associated revenue share arrangements, waking up what was a fairly docile industry at the time.

The introduction of third and fourth GSM operators in 2002 was another milestone, as was the system of calling party pays (CPP) introduced a year later. Before that, we used to look at our handsets and think twice about answering phone calls as in those days the receiving party paid for part of the call.

The mass introduction of prepaid plans in 2005-2006 was significant in terms of industry evolution and mobile for the masses. But we also can’t ignore the award of third generation (3G) spectrum in 2010 and associated network and service roll-out.

Now, here we are again at another crossroads in 2013. But instead of crossing onto another chaotic highway, I get the feeling we are approaching a more orderly road with discipline and – dare I say it – fewer traffic accidents.

Let’s face it. The industry has had a fairly rotten time over the past couple of years. After the 2008 licence issuance, there were simply too many operators in the industry and the chaos over the cancellation of these licences in 2012 led undoubtedly to a loss of credibility for the Indian telecom industry among foreign investors.

However, the future looks brighter for a few important reasons.

Firstly, consolidation is inevitable and will happen. My view is that in three years, India will have five national mobile operators and two or three regional operators. This will result in a more orderly, less chaotic industry – reassuring for long-term investors.

Of course, appropriate and consistent M&A guidelines must be rolled out and adhered to for consolidation to take place.

Secondly, new international investors might be tempted to enter India after the government recently raised foreign direct ownership in the sector to 100 percent from 74 percent. However, this will only be the case if the regulatory environment is deemed to be totally sound and transparent.

Thirdly, Indian operators abroad are bringing their knowledge and best practices back home. Bharti Airtel is gaining operational experience across Africa while Tata and Reliance Communications are doing the same with their international undersea cable and corporate businesses. These business practices can benefit Indian business and consumers at home.

As with previous crossroads, policy makers have to get it right. The current signals look encouraging but to really convince long-term investors, the government’s actions over the next year or so are crucial to the future of this great but complicated industry.

 

Comments

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