News: Consolidation wave: boon or bane for telecom industry?

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Consolidation wave: boon or bane for telecom industry?

The telecom industry is about to witness a big change due to huge consolidation wave going-on in the sector. From reducing the number of players to massive cuts in the jobs; there is a lot, which is still unforeseen. Here is the insightful analysis of the development
Consolidation wave: boon or bane for telecom industry?

The giant telecom sector comprised of 9-10 mobile operators in each circle, few years ago, but today with prevailing consolidation wave they are just reduced to 3-4 players.  

The big Impact was witnessed recently after Reliance Communications pronounced its move to do a three-way merger with MTS and Aircel.  The situation augmented further with the proposal of Vodafone to merge with Idea Cellular. The recent mergers marked the decline of private players to three.

As per HSBC global research report, a three- player market is good enough to generate the optimum balance of competition and investment based on European research. Consolidation might benefit sector-level average revenue per user and return on equity.

Pros and Cons of Consolidation 

Pros:

  1. steady long-term realizations
  2. growth in capital efficiency 
  3. better service to customers 

Cons:

  1. increased pricing discipline
  2. massive job cuts 
  3. less discounts as competition dwindles

Increased jobs cuts 

Looking at the huge consolidation wave the job losses seem inevitable. After significant mergers across the industry, the telecom operators are looking forward to streamlining their business operations by identifying and removing redundancies in the sector.

Most impacted job cuts would be in sales and distribution department and those in the infrastructure services space. The hiring activity in the industry has also experienced a blow. 

As recently reported in People Matters, Aircel, a cellular service major announced the termination of its 10% pan-India staff strength i.e. around 700 employees. The move was a part of the first stage manpower downsizing. As per the media reports, these are the first set of redundancies identified by Aircel to reduce the duplication of human resources meanwhile preparing for the possible merger with Reliance Communications (RCom). The company provided around a week's time to its staff members to agree to the company's compensation package which included February’s  full month salary and the basic pay to allotted for next six months. There is a fear in the market that more such jobs cuts will loom the telecom sector in the near future and this can be attributed to consolidation. The situation aroused when the sector was thrown open to the non-state companies in 1995.

Airtel-Telenor deal

The news that swept that the market the rapidly and brought jitters to other telecom operators. Another big move, where Airtel announced definitive deal with Telenor-Norwegian telecommunications; it will take full ownership of its operations. 

As reported, the deal will provide additional spectrum in about four of India’s populous telecom circles and around 44 million of Telenor’s subscribers. The merger gives Airtel additional access to 43.4 Mhz spectrum in the 1800 MHz band. This move by Airtel will provide an edge over its rivals. 

The four major players that are expected to prove their strong existence include - Airtel, Reliance Jio, Vodafone-Idea combine and BSNL. No doubt that these players will get bigger subscriber base from these mergers but this may wipe-off 10-15 percent of jobs in the sector. 

The major cause that triggered consolidation in the telecom sector is the aggressive entry of Reliance Jio and the rest just followed. The challenges that these mergers might face will be related to regulations and operations and its full impact will still be unknown for some time. 

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Topics: Others, #MergersAndAcquisitions

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