24 October 2017 07:14:05 IST

Telecom consolidation may not change bottomlines significantly

Unless regulatory policies are amended, telcom operators will continue to bleed

Consolidation has for long been advocated as the panacea for all evils plaguing the Indian telecom sector. Now that only three large players will be dominating the market, can they turn profitable? The answer is a big ‘no’. Unless regulatory policies are amended and tariff wars curbed, telcos will continue to bleed, feel experts.

“Consolidation is one of the key factors towards profitability of telcos. As the competition in the market decreases, operators will have more control over a larger consumer base, pricing and tariffs,” says Jayanth Kolla, Partner at tech research firm Convergence Catalyst. However, it is, in itself, not enough to turn the operators profitable.

“The telecom regulator (TRAI) has turned a blind eye to tariff wars in the last decade. It should intervene at the right time to ensure tariffs don’t hit rock bottom, hurting profitability and survival of players,” says BK Syngal, telecom consultant and former Managing Director of VSNL (now Tata Communications).

At the end of March 31, the average price charged by all telcos for 1GB data was $0.33 or about ₹22, according to the Internet Trends Report 2017 by Kleiner Perkins. This is among the lowest data rates in the world and this new dip was a result of the reaction to the tariff war unleashed by Reliance Jio.

The telecom sector, which had 14 players in 2009, will now be dominated by three large outfits — Bharti Airtel, Vodafone-Idea combine and Reliance Jio — after the latest round of consolidation that began early this year.

Tax burden

The sector is burdened with a high tax rate of over 30 per cent, including spectrum usage charges, licence fees, value-added tax and GST. “If you want to compare yourself with global markets, something will have to be done in this area,” says Hemant Joshi, Technology, Media and Telecom Leader at Deloitte India.

Syngal agrees that the tax rate of 30 per cent isn’t good for the sector. “You cannot penalise companies for good performance, as the more they earn, the more they pay out. There should be a cap on the revenue the government wants to earn from the sector. There must be a scientific formula, leaving enough for operators to invest further.” Joshi says the sector needs a new dynamic telecom policy which will give flexibility to businesses. “This is a futuristic industry and tech-driven. Operators have paid a big premium for spectrum. If it is not used optimally, it is a waste of national resource. Providing flexibility in terms of trading and sharing airwaves will enhance the usage of spectrum as well as the money invested by companies.

“Moreover, telecom should be considered as an infrastructure sector and given support, on the lines of tax-free bonds for roads, etc,” Joshi adds.

Better service

Kolla says the onus also lies on operators to improve service quality if they really want to retain subscribers and turn profitable. “In India, the service quality is still the suspect in mobile telecom. Coverage, capacity, as well as availability of networks during peak hours in different circles is not uniform. Unless and until operators invest in improving network quality, they may lose consumers who are still warming up to data services.”