Article: Is the Indian telecom sector witnessing decline?


Is the Indian telecom sector witnessing decline?

The Indian telecom market that witnessed the high-paced growth over the past 25 years is presently battered by the mountain of debts, aggressive competition, and downsizing.
Is the Indian telecom sector witnessing decline?

The recent reports of Tata Telecommunication heading to closure are the latest in the news to indicate the weakening health of telecom industry. The industry which was blooming at an unprecedented rate and was once regarded as the job creator is witnessing massive layoffs, mergers, and acquisitions. It seems the stormy entry of Reliance Jio, high spectrum prices and price wars have had a humongous effect on the older players and especially fringe players like Tata Teleservices and Reliance Communications. Today, the Indian telecom market? is battling brutal price competition and struggling with unsustainable levels of financial stress. 

To cope with financial loss in the sector and to streamline the ongoing consolidation, telecom companies are adopting several cost-cutting measures including downsizing to sustain operations.

According to reports, nearly 1,50,000 direct and indirect jobs are at risk due to the financial strain experienced by the telecom companies. Vodafone has earlier axed 1,400 people as a part of merger plans with Idea. Sunil Mittal led Bharti Airtel dismissed 1,500 people from the sales and retail teams after it acquired Telenor. Reliance Communications has also laid off  1,200 people over the last year in the lead-up to the merger with Sistema and its now-called-off merger with Aircel, which, too, is learned to have let go of 800 employees.

The sector was once amongst the top five largest employment opportunity generators in the country and supported direct employment of over 20 lakh in the country during 2015-16.

Entry of Reliance Jio:

The trouble started when last year in September, Reliance Jio entered into $26 billion Indian telecom market. The Mukesh Ambani led Jio disrupted the sector by offering free voice calls which accounts for over 80% of revenues of the existing players.  Jio customers were offered free voice calls and 4G data at a rock bottom price.

It was reported, with the launch of Jio, within two days, Bharti Airtel and Idea lost Rs. 9,800 crore and Rs. 4,500 crore respectively in market value. The company started charging subscribers for data from this year in April; however, the price is still way below the market with voice calls being free.

Ratings agency ICRA intimated the impact of Reliance Jio is tremendous on the other telecom players and stabilization for the telecom industry is still at some distance away, and the injured sector needs an investment of over Rs.50,000 crore annually.

Increasing financial debt:

Amid this aggressive competition among the telecom players on prices and onslaught by Jio, the telecom sector is witnessing substantial financial stress. Successive spectrum auctions by the government over the past seven years have contributed significantly to the sector’s miseries. Gopal Vittal, MD and CEO of Bharti Airtel was quoted in media saying, “It is also reported that the cost of spectrum is highest in India and has put a debt of Rs.4,50,000 crore and return on capital at about 1 percent.” However, the total sectoral liability which includes loans from domestic banks, overseas borrowings, and annual spectrum installments is hung at nearly Rs.8 lakh crore. To make matters worse, the Telecom Regulatory Authority of India (TRAI) has recently issued a regulation to cut Interconnect Usage Charges (IUC) by 57% cut. The telecom regulator has recommended a decrease in IUC to 6 paise/minute and suggested that it be reduced to zero from January 1, 2020.  IUC is paid by a mobile carrier originating a call to the mobile network where it terminates. 

If IUC rates are slashed, the three incumbent players-Bharti Airtel, Vodafone India, and Idea Cellular will be the biggest revenue loser since these three operators have the most number of customers and thus, gather a majority share of the IUC revenue as most calls terminate on their networks. On the contrary, Jio will be the biggest gainer if IUC is scrapped.

Mergers & Acquisitions 

To counter this stiff competition, the sector started looking for consolidations as a way to stabilization. The giant telecom sector which earlier included 9-10 mobile operators in each circle has now reduced to 3-4 players due to mergers. The telecom industry was in jitters with the announcement of mega-mergers of Vodafone- Idea Cellular, Aircel- Reliance Communication and Telenor’s acquisition by Airtel. However, the financial crisis, rising competition, and mounting losses failed to add expected gains. The recent decision by Reliance Communications and Aircel to call off the merger between their mobile services business is proof that the telecom sector’s fate is still in limbo. 

Presently, the job market in India is witnessing decline with the arrival of technologies like automation, competition in the market, socio-economic policies, and demonetization. It is unclear how long the slump in telecom is going to last and what’s the future of the employment in the sector holds for the job aspirants and the leaders.

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Topics: C-Suite

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