Are the telecom players a happy lot, considering the low ARPU (average revenue per user) in the country? With this question begins my telephonic interaction with Neeraj Jain, Director, Strategic and Commercial Intelligence, Transaction Services, KPMG.
“The telecom players are certainly not a happy lot!” he observes. Intense competition and scramble for new subscribers are the main factors responsible for the historical/ continued decline in ARPU, he continues. “In the past, new subscriber volumes helped to more than counteract the negative impact of decline in ARPU and ensured robust revenue growth of the industry. This is no longer the case.”
The decline in tariff/ ARPU is now so steep (triggered by Tata DOCOMO’s per second billing and RCOM’s Simply Reliance plan) that despite continued robust growth in new subscriber additions, the recent reported figures of the industry suggest a flat or a decline in revenues, notes Jain.
How is this likely to pan out, I ask? “Things are only likely to get tougher with the commercial launch of services by new operators like Telenor, Etisalat, Datacom etc. and availability of Mobile Number Portability (MNP) facility at a low fee (capped at Rs 19). The general consensus is that this trend would stabilise/ reverse in about 2 years’ time,” he opines. Our conversation continues over the email…
Excerpts from the interview.
Is there a future for landline?
India has given the go-by to landline in favour of wireless. As a result, over the last several quarters, the number of landline connections have either declined or remained stable at best. The future for landline is contingent on whether or not it can evolve to retain its relevance in today’s context.
Today, new residential landline connections are principally taken for broadband access with voice being a secondary criterion. Within the existing landline connections, only 7 million (about 20 per cent) of the installed connections have the capability of supporting broadband owing to legacy landline network constraints.
With the launch of 3G and WiMax services and anticipated consolidation in the Local Cable Operator (LCO) space, landlines are going to lose their monopoly of being the principle recourse to providing last mile access to subscribers for broadband and related high speed services.
In addition, MoUs are getting migrated to wireless. So whilst landline will not completely disappear, the proportion of landline to total telephony both from a volume and revenue perspective is likely to continue to decline.
Do you see significant differences between the Indian and foreign telecom players operating in the country, in terms of operational efficiencies and customer service?
I don’t think that significant differences exist between Indian and foreign telecom players. Most of the established players with multi-circle/ pan-India presence have been around for the last 10 years (or more) and have evolved processes and procedures in place.
Cut-throat competition has ensured that any innovative approach by one player to lower costs or improved service standards is quickly replicated across the industry – outsourcing of network maintenance and sharing of passive infrastructure are two such examples.
In addition, job-hopping by senior and middle level telecom professionals between various telecom players and the fact that telecom is a big spender on consultancy services ensures that best practices and processes are followed across the industry.
In what key aspects is the Indian telecom market different from comparable countries?
There are several factors that differentiate the Indian telecom market. The Indian telecom market is today characterised by the highest subscriber growth but lowest tariffs. Both these trends are expected to continue going forward.
The Indian consumer is very much value-for-money driven and overwhelmingly prefers the pre-paid product. The industry landscape is characterised by 7 established players (with 4-5 more players to follow), focus on Quality of Service is either low or non-existent – both these characteristics are at variance to mature markets.
On both capex and opex front, telecom players have done a great job. Capex costs @ 40-50 USD per subscriber line (for telecom equipment) is a fraction at which networks were deployed in the developed or even developing countries whilst the emergence of the passive infrastructure sharing has allowed the establishment of a low opex model.
How do you anticipate the rural and urban markets for telecom products and services growing in the near to mid term?
Latest TRAI estimates suggest a 1 billion subscriber base by CY2015. With high mobile penetration (80 per cent) in the urban areas, growth in voice traffic is expected to be driven by increased penetration and increased usage in rural areas. This increase is expected to be aided by continued fall in handset prices, increased rural coverage, benefits of increased prosperity as the fruits of the growth in rural economy trickle down, network multiplier effect etc.
Growth in rural telecom is also expected to be aided by migration to cities and towns as migrants become subscribers and use telecom as the tool to stay in touch with near ones back home.
In urban areas, apart from increased penetration, I expect increased uptake of Value Added Services (VAS) as operators increasingly focus on VAS to lift revenues and service providers shift from entertainment VAS to applications that enrich life (commerce, health, location based services for example). The launch of 3G, and WiMAX are expected to be the other key drivers of telecom services in the medium term.
Where are the big gaps in the services space for telecom, between the potential and absorption?
My sense is that the biggest gap exists in the Internet access space. Internet per se has tremendous potential to grow in India both from an e-governance as well as dissemination of information perspective. Today, the realisation of potential is limited by low penetration of PCs, lack of last mile access, lack of suitable local content etc. The government has taken some steps to alleviate the situation but these haven’t had the desired impact.
Your views on the regulatory changes that are likely soon.
With MNP and 3G and BWA (Broadband Wireless Access) licence auctions on course to get implemented soon, the Government is likely to consider other regulations to give further fillip to the telecom market. One such policy that might be announced soon is regarding voice-over-internet-protocol (VoIP). This technology provides low-cost call rates since it uses Internet and does not require a dedicated channel unlike other telephone technologies. However, high speed connectivity is a pre-requisite to ensure voice quality in VoIP.
In 2005, the DoT allowed unlimited Internet telephony to all telephone service providers in India. Later in 2006, limited access was also given to Internet service providers – they were not allowed to terminate or carry calls within India. So far, there has been limited success of VoIP – these services have not been started by many operators and some 34 licence-holders are legally reporting Internet telephony revenues.
With high-speed and good connectivity Internet becoming plausible post launch of 3G and BWA services, the Government intends to move forward with the policy, which would also curb the growth of illegal use of VoIP. An entry fee of Rs 430 million has been proposed by DoT for Internet Service Providers (ISPs) wanting to offer VoIP-based telephony services within the country; such ISPs might also be asked to share 9 per cent of their annual service revenues with the Government.