Indian telecom sector is passing through one of its most challenging phases ever
Towards the end of the previous decade, telecommunications was the hottest sector one could think of. Driven by mobile communications and a stupendous growth in internet usage, the country was passing through one of its most exciting phases after perhaps the green revolution in the 1960s and liberalisation in the early 1990s.
Every other corporate worth its name wanted to reap their fortunes in mobile telephony. Essar was one of the earliest to enter the fray, just as Reliance. The Tatas and Birlas were not behind, so was Videocon. A host of foreign companies made a beeline for India — Hong Kong’s Hutchison, Japan’s DoCoMo, Norway’s Telenor and UAE’s Etisalat, to name a few.
There was a scurry for procuring telecom licenses, and even companies that had hitherto no experience in the field began queuing up. Heads of telecom firms were turned celebrities, and no corporate discussion would be complete without throwing in a bit of telecom jargon — the importance of VAS (value added services), the need to transition to new generations of mobile technology 3G and 4G or concerns regarding inadequate spectrum.
Contrast that with the present.
The Indian telecom sector is passing through one of its most challenging phases ever. Players are shutting shop, operations are shrinking, and companies are shedding flab like never before. It is believed that one-fourth of the workforce or 75,000 is likely to be retrenched as companies struggle to stay afloat.
About a year ago, the sector had three lakh employees. According to reports last year, as much as 30-40 per cent of employees in the vendor companies have left the sector, while operators have seen 25-30 per cent of their workforce shrink in the past one year. Tata’s mobile telephony business and Anil Ambani’s Reliance Communications have been casualities.
While Tata has struck a deal with Airtel to merge the telecom business with the latter, Ambani has found a buyer for his embattled company in his elder brother, Mukesh. It is still not clear how many thousands would lose jobs in the merged entities. There is probably no business sector in the past decade that has been as shaken up as telecom.
First, the sector was marred by what has come to be known as the 2G scam in the early part of this decade, which saw promoters and companies being dragged into a protracted legal war, write-offs for companies that once saw India as a major destination, and cancellation of licences under the apex court's watch.
Later, in 2016, another disruptor in the form of Reliance Jio sent shock waves through the segment, challenging existing business models of companies and leading to massive consolidation and job losses. Surely, one cannot blame new technologies for the telecom sectors woes. Companies that have been at the cutting edge of new technologies — for instance, the long-term evolution of LTE technology that Reliance Jio has brought in, which promises high definition voice and higher data speed — are able to capture a sizeable chunk of the market.
Jio has already garnered 160 million subscribers and has turned profitable, just 18 months after its launch. Jio swung to a profit of Rs 504 crore in the third quarter of 2017-18 from a loss of Rs 271 crore in the second quarter. While technology-created disruptions are inevitable and contribute to the sector’s growth, the man-made crisis in the sector was totally avoidable.
In December last year, the CBI court hearing the 2G scam gave a clean chit to all accused, including former telecom minister A Raja. But the damage had already been done. In 2012, the Supreme Court cancelled 122 licences granted during A Raja's tenure, and directed that fresh auctioning of licenses be conducted.
The companies whose licences have been scrapped, apart from Uninor (a joint venture between Norway’s Telenor and Unitech Group), and Sistema Shyam (which offers services under the MTS brand name through a JV between Russia’s Sistema and Shyam Telecom) included S Tel, Videocon, Idea Cellular, Tata Teleservices, Loop Telecom, and Etisalat DB (a JV between the UAE’s Etisalat and Swan Telecom).
According to media reports, these eight companies together invested Rs 35,000 crore to Rs 40,000 crore, of which two-thirds was put in by two telcos, Uninor and Sistema. These companies have already been crying foul since they had to write off their losses in India, but with the CBI court’s acquittal, can they hope to revive their fortunes in India? Tough chance.
It is Jio which has made the best use of the opportunity that arose amidst the ruins of the telecom sector, and the head start it has made in 4G is phenomenal. Meanwhile, the country can keep brooding over its lackadaisical approach to policy-making which drove several top telecom firms away and jeopardised millions of jobs. Or wake up to the challenge and focus on creating the millions of jobs that the youth of this country were promised.
(Courtesy of Mail Today)