The Shrinking Telecom Sector

We all now know that the revenues of the Indian Telecom Sector are falling. What is more alarming is that no one knows the bottom, i.e when it will start to pick up again. The situation is clearly the result of a fierce competition between rival companies to sell conventional telecom services (voice, and data). However, it is a treat for the consumers, as they are bestowed with all kinds of offers, at prices, which were unthinkable in the past. Though it is foolish to expect that these offers will last forever, but in the interim, the investors are worried about losing billions and are not ready to make any more investments. As a result, maintenance, expansion, and adoption of new technologies (like 5G) are deemed to suffer. Also government revenues, bank debt etc are at risks due to ever increasing debt to EBITDA ratio - a metric the banks use to measure the operator's ability to pay off their debts.

Apart from lowering license fees (currently 12% of revenues), what other options are available to salvage the situation from getting bad to worse? In India, TRAI is the custodian for regulating prices, and it is under forbearance - a regime which came into being after the price ceiling set by TRAI became irrelevant, as no operator ever breached it or even came anywhere close to it. Floors, however, are not set, as it is hard to imagine that an operator will willing take a loss. It is assumed that they (operators) will recover money, one way or the other.

If that is so then why are the operators complaining? Why are they not able to find other means to increase revenues? For example, a provider of free email, chat video services etc do not complain, as they are able to recover their investments through other means, i.e charging the other side of the market (sellers, advertisers etc). But, the telecom operators can't as they are prevented by the TRAI's Feb 8th, 2016 order from aligning with content providers to offer free data. Though TRAI later suggested other ways of offering free data, but it is of little use. See my earlier note in this regard "Analysing TRAI's "Free Data" Recommendation".

Hence, preventing the operators from entering into a business arrangement with content providers to offer free data, that too without any prior evidence of misuse, has tied the hands of the operators to find alternate revenue streams. It looks weird that on the one hand the operators are allowed to offer free (subsidized) data but on the other, they are prevented from monetizing it through other means to arrest falling revenues (like other sectors do, for example, newspapers are sold below cost but money is recovered by selling advertisements). This is impacting all and preventing the stakeholders from making necessary corrections by adopting innovative business arrangements thereby putting all stakeholders (including the banks) at risks.

(Views expressed are of my own and do not reflect that of my employer)