Telecom industry in India: Future strategies and role of government

Abstract

Indian Telecom Sector continues to be fastest growing country in world, with subscriber base of 671.69 million, making it second largest telecom market only after China. Global financial crisis which emanated from USA and took almost all global economies of world in its grip, India remained largely insulated due to strong domestic demand. No signs have been observed indicating any downfall in growth of Telecom market in India. As of 2010, overall telephone density reached 56.83%. However, rural density still stands close to 18% which shows Indian telecom industry still has strong market potential for future growth and market share. One of the important factors leading to such an impressive growth is strong and responsive regulatory system in place. Indian Telecom Regulatory system recognizes telecommunication as an important tool for socio-economic development of country and remains committed towards fostering competition and ensuring level playing field for all the players. In recent years, government has taken several steps like increasing FDI limit in telecom companies up to 74% (49% under domestic route), abolishing of Access Deficit Charges, establishment of USO fund dedicated towards the objective of developing rural telephony, sharing of passive infrastructure, and many others. However there are several other issues like bureaucracy, political corruption leading to 2G spectrum scam, delay in 3G and WIMAX spectrum allocation, and empowerment of TRAI still remain unresolved. Though auction of 3G is touted as landmark achievement of government as it added twice as anticipated revenue to its coffer, it literally stripped telecom companies of cash. Books of all winners are now laden with debt and will take almost five years to breakeven their investment, providing no or little room for infrastructure investment. Fixing upper cap for bids in addition to setting base rate could have avoided that problem. Though India boasts of largest subscriber base and fastest growing telecom industry, there are several potential issues both at consumer as well as industry level. Despite of large number players competing in each circle and plenty of subscription options available at cheaper price, customers are facing issues like call drop, poor customer support services, network congestion, several confusing plans and unscrupulous billing. It is not irony that India witnesses largest churn rate among APAC countries. At industry level, companies continue to struggle with burgeoning debt, high churn rate, falling ARPU and profit margin, imitation of schemes, and price based competition which makes it impossible for players to provide better services at premium through innovation. Nevertheless, rollout of 3G and WIMAX services will open plethora of opportunities to cater Value Added Services which will not only ensure additional revenue to players but also provide them with latitude of differentiating their services from others and hence shifting the competition away from price. Cheaper handset and imminent growth of old handset market will enable even lower income group people to afford mobile services and hence deepen the reach of mobile. Increasing mobile reach will bolster mobile payment and mobile commerce, and charging even miniscule fee for such transaction will provide significant revenue to telecom players who are struggling with declining profit margin. However, going forward companies will have to grapple with challenges like cultural diversity which can make widespread deployment of VAS difficult, high interest payment etc which can potentially impede anticipated growth. Implementation of MNP will further pose challenges in terms of increasing churn rate and will require operators to provide customers with better quality services and innovative offerings to retain them.