Telcos vie to improve service through consolidation

Telcos vie to improve service through consolidation


Entry of Reliance Jio last year, with a free promotional offer, has hastened consolidation in the Indian telecom sector. Reliance Communication and Aircel had announced that they will merge their operations, Vodafone and Idea Cellular are in advanced stages of merger and India’s largest telecom firm Bharti Airtel is poised to acquire Telenor.

This means, soon, only four or five telecom operators will remain in the market from 12 players a few years ago. Experts are of the view that consolidation will not only be advantageous to the industry in the longer run but will also help face the battle initiated by Jio.

The freebies created flutter in the telecom industry and the incumbent telecom firms have reported a sharp decline in their revenue. Nevertheless, consolidation also helps improve services and expand network, say analysts.

Officials in the Department of Telecom are optimistic about the consolidation. Mergers and acquisitions will help reduce intense competition and the sector will see long-term gains and improvement in capital efficiency.

Fragmentation of the market as well as spectrum have often been blamed for poor quality of services by the companies. With the merger of companies, the days of fragmentation will end and force the new entity to be innovative and more efficient, they say.

Though most of the companies are giving a number of offers to attract or retain customers, it will not be sustainable in the long run. The flip side of the consolidation is, if only a few players are in the market, there will be less competition and discounts to consumers will come down. But the big hope for customers is improvement in service. With companies betting on data usage for revenue generation than the voice segment, there will be challenges while providing quality service to retain customers.

“The consolidation is going to be very good for India as we are likely to get four private and one government player (BSNL-MTNL)”, says outgoing Telecom Secretary J D Deepak. He is also positive that the spate of buyouts would leave enough room for competition in the Indian market.

However, this churning in the sector will be a setback to the tower companies because merger entities will cut down overall cell sites. If Vodafone and Idea merge, they will remove towers where there is an overlap. With this, the companies can reduce the network operational expenditure and improve their profits.

Once the mergers clear regulatory hurdles, around 10% to 15% jobs in the telecom sector in the next two years, mainly in sales, distribution and infrastructure services, will be wiped out as the companies streamline the system.

The mergers will also help strengthen the network. If there is a common network, capital expenditure will be less and requirement of base stations will also reduce. This will also help pooling of spectrum. At present, in some networks, there is a huge rush of traffic while in some others, there is nothing.

The consolidation will lead to optimum usage of the radio waves and companies can concentrate on faster rollout of services in uncovered regions, mainly in the Northeast and the hilly areas.

As Reliance Jio attracts new customers at a fast pace, only those operators with sizeable data coverage and data capacity will remain in the market. Pooling of infrastructure has already happened in the telecom sector as sub-sea cables are all owned by consortiums of operators. There is a sharing of telecom towers among some companies. Now, the time has come for companies to extend cooperation in radio waves, optical fibre and base stations.

Bharti Airtel Chairman Sunil Bharti Mittal, while addressing the World Mobile Congress in Barcelona recently, said large countries only need three service providers while smaller nations could be covered by two carriers.

“You really want a few sustainable solid operators who can put out the investments that are required to deal with the new technologies, demand of data and the speeds that you want. It’s extremely important that the regulators recalibrate demand,” Mittal said.

Revenue, a concern

As India expects $10 billion Foreign Direct Investment in the telecom sector in 2017-18, officials in the telecom department say consolidation will help  the country attract productive investment. Though dropping revenue is a matter of concern, officials say that an era of free service and falling revenue will change things in the days to come.

The Telecom Commission, the highest policy making body of the sector, has urged the Telecom Regulatory Authority of India (Trai) to revisit its tariff orders and free promotional offers of firms like Jio.

The Commission also warned of the “serious impact” of promotional offers on the financial health of the sector and the capability of the companies to meet their contractual commitments, including payment of installments for spectrum purchased, and repayment of loans.

Aimed at facilitating ease of doing business in the sector, the telecom department undertook a slew of reforms in 2016, including formulating the right of way rules for faster telecom network rollout, spectrum harmonisation, increasing the availability of spectrum through auction and introduction of Aadhaar-based eKYC for new mobile connections.

As consolidation gathers steam, there is also a demand to declare the entire country as one telecom circle from the existing 22 circles. With multiple circles, while the companies will have to have separate systems in place for each circle, one circle would mean lower costs to companies.

Indeed, the progress of the telecom sector is very critical to the government’s Digital India initiative, Smart Cities programme and digital payment system. To maintain the pace of growth, the government and regulators will have to work with the sector by addressing the issues flag­ged by it.