In the present times of economic turbulence in the global & domestic markets, hardly any specific sector has come out unscathed from the wrath of excessive pessimism and effects of slowdown. But one industry that has somewhat managed to scrape through amid the recent slowdown is the Indian telecom sector- which easily is one of the fastest growing industry in the world. Cellular telephony, in fact, forms a crucial part of the Indian infrastructure story which has been attracting large chunks of investments which can only go up with entry of new players and policies.
A Wireless Revolution:
Wireless telecom services can easily be the next big thing what with the lower Tele-density levels in rural & semi-urban areas, which still largely remains untapped. The new economic reforms, technological changes and policies led by the government has left open the door of hope for the Indian telecommunication sector in the form of 3G (third generation spectrum) technology. Though, this upcoming latest technology is moving forward at a snail’s pace and is struck by procedural delays. The government should revisit some of the pending issues faster with constant interaction with TRAI. New upcoming technologies like 3G services, WiMax, rural telephony, data services & Value Added Services will drive the growth prospects for the sector for the next few years at least.
Rumblings in the Telecom Sector:
The new restructuring changes in the Wireless world are set to sweep in the unusual changes in Telecom Services sector. The Indian telecom sector is still growing at a very fast pace with the total number of subscriber base crossing over 250 million mark; with a bounty of untapped rural population still in the fray as potential subscribers. It is no surprise than, that there are various rumblings in the telecom sector right from 3G spectrum allocation, WiMax, falling ARPUs (average revenue per user), tower infrastructure business, mobile number portability & price wars triggered by new entrants; which depicts the potential of high & continued growth rested in this sector in its foreseeable future.
What is 3G Technology?
3G spectrum is most widely heard term in the recent times used for the next generation of mobile communication systems. It provides access to a wide range of telecommunication services specific to mobile users by helping in providing faster data access and multimedia services through the mobile phones. 3G helps to simultaneously transfer both voice data and non-voice data. It also aids in accessing of video telephony. 3G is about better bandwidth and high speed transfer of data & internet browsing.
In India, State owned telecom companies BSNL and MTNL are the first two firms to get the 3G license. Whereas for firms in the private sector, an auction process would be conducted through bidding for acquisition of 3G spectrum.
How will 3G Technology bring in revolution?
The telecom operators are anxiously awaiting launch of 3G spectrum so that they can provide high-end services to its customers. 3G can be useful in various other ways like e-learning, stock transactions, and various other applications through wireless communication. It will serve as a one-stop entertainment source through mobile accessing for downloading purposes, e-mailing, mobile TV, ticker services, music, mobile games, movies, mobile banking, GPS, etc. while on a move.
The next generation technology will evolve into an entertainment devise, organizer, payment devise & serving other useful purposes needed to make life easy & comfortable by just logging in to ones mobile device.
Constraints in embracing 3G Technology:
The major deterrent for 3G technology may turn out to be expensive handsets with state of art features with 3G enabled technologies. Most subscribers in India still use mobile phones for voice services with low-end value providing handset features & hence bleaker multimedia functions.
The DoT insists in its policy that the base price for 3G spectrum allocation would be Rs.2,020 crore while that for broadband access technologies would be Rs.1,010 crore. But, the finance ministry has different views & is demanding for doubling up of such charges as prescribed by DoT. This would lead to increase in the cost of 3G services & make it expensive for the final consumers. This would also reduce the interest of bidders in the auction process & may yield poor response from the service provider companies including Internet service providers.
As per some reports from a few Telecom Analysts, during the current recessionary times, the absence of foreign bidders would further lead to rationalization of expectations of high bid realizations on the part of government entities & waning of interest in the auction process.
Delay in 3G Auction:
The spectrum demand for 3G licenses is expected to far outstrip its supply going ahead in to future. The telecom companies are required to buy the spectrum from the related government entities. Now, even the government is slowly realizing that spectrum allotments can garner smart revenues & should be considered as a valuable resource. This has prompted government entities to sell the spectrum at the highest possible prices.
This has led to a constant delay in the auction process of 3G spectrum. There are differences of opinions between various ministries of government organization on the real value of these spectrum resources, prompting a delay in its auction. Even the defense sector is playing its own role in complicating releasing of 3G frequencies from its control reasoning that some portion of the spectrum be reserved for their communication needs. Now, the auction is expected to take place early next fiscal year in the light of disagreements between various government departments on some key parameters.
Mobile Number Portability:
Mobile number portability (MNP) enables the subscribers of telecom services to retain their numbers while switching over from one network operator to other within the same service area on the look out for better product / service offerings. Analysts say that this policy may act as a customer deterrent for some operators whereas allowing the better service provider an opportunity of newer customers from the competitor’s camp.
The much awaited mobile number portability policy being in place is still to see the day light for the benefit of subscribers. As soon as the regulation comes into implementation, it will lead to further refinement of services & product offerings by various service providers, small and big. Customer relation & satisfaction will form a core part of company policies as sound services will lead to customer retention. Also, during such times, customer poaching from various competitors will also become common as subscribers could then shift to other service providers with the comfort of communicating with the same number & no need to change their old numbers while changing their service provider in the look out of better service & product offerings.
As per Telecom analyst GV Giri, “Only those incumbents who manage to win 3G license will emerge as winners, as they will be best positioned to grow their ARPUs exploit their existing infrastructure better and at the least, remain competitive in a MNP regime.”
Constraints in implementing MNP:
1) Gearing up present telecom infrastructure to suit changes in subscriber’s service provider for availing of the MNP facility.
2) Maintenance and updating of ported number database.
3) Recovering costs of porting from an individual network to another. During times of competition, the acquiring company may have to provide free portability service on the prospect of gaining new customer.
4) Operational challenges like a prepaid subscriber will not be able to transfer unused balance in their accounts to the other service network.
3G Technology vs. WiMax:
WiMax stands for Worldwide Inter-operability for Microwave Access. It is a digital communications system which enables wireless transmission of data. WiMax is predominantly used for fixed services. It is a second generation protocol which allows more efficient bandwidth use, interference avoidance, and is intended to allow higher data rates over long distances. Initially, WiMax is expected to be used for the fixed residential & enterprise broadband access in urban areas & than to large untapped rural parts India. WiMax networks, when deployed across, one can connect to the internet wireless from any point of the vicinity, even on the move.
Whereas 3G networks, on the other hand, offers its users various services like video telephony, voice calls, high speed internet and other advanced services while on a move. This technology provides more enhanced value services at lowered costs.
Review of recent Q3 Result’s of Telecom Majors:
Telecom major Bharti Airtel reported a growth of 26%. It witnessed a rise in net income from Rs.1720 crore in third quarter of previous year to Rs.2160 crore in the Q3 this financial year. The company added a substantial number of subscribers for this quarter under review, though there was a marginal fall in its ARPU.
Idea Cellular, an Aditya Birla Group company, on a standalone basis, reported a new profit of Rs.219 crore for the third quarter current fiscal, down 7.3% from Rs.236 crore same quarter previous fiscal. This drop in margin was witnessed on the back of increased overall income.
Reliance Communications, on the other hand, posted a mere 2.7% rise in profits in the third quarter this fiscal compared to the one in the last fiscal. Though, it witnessed a jump in the number of subscribers by 5.3 million users
GSM launch by Reliance Communications:
During the first month of calendar year 2009 Reliance Communications added 5 million (CDMA+GSM) new mobile users on the back of its recent GSM launch. With this the total number of subscribers for the company sums up to 66 million. The company has rolled out GSM services across 14,000 towns. The company has guided capex for FY10 at $3.2 billion.
However, I feel, Reliance Communications recent GSM launches & promotional offers should ensure reasonable growth in subscriber base & revenues in the near term, but it remains to be seen whether it can settle with higher growth in margins over a sustained period of time.
A Request to Readers:
Readers are requested to post their view/query/suggestion in the below given 'Comments' section. They can share their thoughts, positive or negative, through this interactive Comments section which will make the blog much more interesting for the readers themselves, in gauging the response to the article & knowing different view points of various investors/traders.
Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any nature for your trading and investment decisions and its consequent results.