BACKGROUND
The first Telecom Big Bang has happened- Vodafone & Idea… with this, hope is being expressed that the Telecom trade is now beginning to settle down. I wish I were as sanguine as some of my friends on this point; I fear that this may be the tip of the iceberg. I don’t lay claim that more mergers may happen; though that cannot be ruled out. There have been many exits already. But for this to translate into on-ground sanity will require a lot more to happen… to understand this, we shall have to glance at the industry statistics in some representative parameters…
SERVICE PROVIDER INDUSTRY IN INDIA
There is no easy answer to this ills of the service industry in Telecom– the service industry isn’t in exactly a great shape. Let us look at a few examples to illustrate; Idea has a debt of 49K Cr, and has an ARPU of Rs. 157; Airtel has a debt of about 97K Crore, with an ARPU around 188, just to name two examples. Jio has already notched up 2,01,000 Cr Debt. Usage isnt taking off; the demograhic & income profile of the nation, demographic distribution are major issues, lower prices in the past 6 months notwithstanding.
The investments in this industry are very high indeed -as can be seen from the examples above. And the ARPUs aren’t what they could be, for one. Second, data isn’t returning the value as of now; it is a long haul in that aspect, as again we can see from the network speed and data ARPUs that are coming in. A rough calculation on Reliance Jio for 100 Million customers indicates an ARPU target of Rs. 434/- just to recoup the debt over a period of 10 years. This does not account for Opex and other expenditure, system ugdrades that will be needed in future… Agreed this is a simplistic calculation, and a lot more goes into it – but compare this with current ARPUs and you get the drift!
REVENUE STREAMS
There are two revenue streams mainly – Data, and Voice. Both are under pressure from various sources. That should indicate a firming in prices; but the on-ground reality is different, as Jio has no option but to increase subscriber base to survive. That means, the other firms are in a catch-22 situation; the industry sorely needs an upward price correction – and yet the recent history belies this, showing a massive downward correction. If they increase prices – they run the risk of irritating a customer who may already be chafing under less than optimal performance. If they decrease prices – they exacerbate the problem… to that you add fresh cash flows and the hope of the future, and you get the scenario.
What the companies will do remains to be seen; but I for one most certainly do not foresee an upward trend in prices. And unless Prices firm up, this industry will continue to face massive pressures from all sides. The core problem remains, not one company in this trade is able to hold onto a price premium for any length of time whatsoever. And that wont happen unless services improve, which in turn may require a further infusion of capital if the underlying systems are required to be augmented. Add to that the risk of Reliance Jio have a relatively fresh network {though, to be honest, it has issues of its own}
ANALYSIS OF PROSPECTS
This is not an easy scenario to either analyse, or to take decisions in; several forces are intersecting. First, Jio; second – consolidation, third – low overall revenue realization per user & fourth – crowded n fully covered market with many competitors. Jio is a threat, but for that threat to be most potent, the call setup has to be regular; that is, the calls should go through. I frequently am not able to connect with Jio numbers, meaning I don’t really have the incentive to switch my primary number to Jio. Add to that the competitive response of other brands, which has lowered prices and/or decreased tariffs. Here again, we see that increased tariffs have not come about!
That does not mean Jio wont succeed; it is only a matter of time before calling issues gets sorted; for all I know, it might already be under implementation. If that does happen – prices will come under more pressure, and go down. The low overall revenue per user means increasing per customer realization {ARPU} is a prerogative for all companies. But the competitive scenario does not allow any scope for that to take place as of now. It is a crowded market; we have over a Billion mobile users. A new entrant, and an already crowded market means there is little strategic space for a price premium.
DATA
As far as Data ARPUs are concerned, that is another story entirely; India is a nascent market, and requires a completely different strategic approach, one that builds, deepens and develops market. Sadly, that is not happening; this is one space where companies need to stop competing and come together in a solution mode to deepen the market! In June 2016, around 1.4GB per active smartphone user was the average data consumption; with the data rates being what they are, this is abysmally low. The market needs two divergent strategies for Voice & Data; will this happen? Let us see…
I am aware of reports claiming a manifold increase in both data consumption as well as 3G users in India. I don’t see that happening to that scale; the income and demographic profile of the country does not support such a contention. I don’t see 90% of the population using data regularly – not in the next 5 years, at any rate. Data consumption will decidedly increase; let there be no doubt of that. But the spread and frequency of the same will be as per the income profile spread of the nation; this will require a completely different strategy – one that is not mass, but niche or selective…
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