The Telecom growth story started in late ’90 and early 2000 helped India to survive worldwide economic downturn in 2001-2005 by creating millions of direct and indirect jobs absorbing major shock in ICT domain. The Telecom Mobile operator invested Billions of $ to increase network coverage, capacity, operational excellence and innovative services to cater dynamic transition of user usage trend. During the process teledensity of mobile subscriber started showing result and encouraged mobile operator to increase Capex threshold to support data oriented services. By 2007 – 2008, Indian Mobile operator completed the transition from circuit to packet switch with more 2.5G supported data and VAS services fulfilling subscriber usage pattern such as MMS, photo Sharing. With the growing adoption of wireless services and the potential to unlock the value of spectrum, high teledensity, enabling higher QoS through higher competition; government decided to allow additional mobile operators. The move acted as poison pill for Telecom sector. The new mobile operators moved into the market with price and volume strategy to increase the subscriber base to increase the valuation of company. The strategy started voice call charges even lower than 1 US cent for considerable period of time. The price sensitive Indian subscriber base started switching valuing more to price than performance. In order to retain valued subscriber base, incumbent were forced to lower the tariff price. The move impacted mobile operator ability to make respectful profit and in turn invest in modernization. The Mobile operator’s EBITA margin, operating profit, net margin went down drastically which attracted higher credit spread for most of the mobile operator. The 3G and BWA auction also increased to mobile operator wounds but they had no option to bid to be in the game. With already ballooned debt level of more than $46 Bn with more than 30% debt in foreign denomination, depreciating Indian rupee, is making it increasingly difficult for mobile operator to service. The mobile operator move to monetize tower assets attracted little to no interest as investors are wary of the surrounding environment. The recent regulation of MVAS, roaming, license renewal, mandatory participation in upcoming spectrum auction, high spectrum base price, and one time spectrum fee forced Mobile operator to change their strategy and turned them into sceptical from believers. The mounting debt level is showing ripple factor across different industrial sectors.
According to NASSCOM, Telecom share of IT spend is 17% and lower capex allocation impacted IT companies bottom-line. The slowdown in IT sector impacted Job creation and opportunity for Large to mid-Tier IT vendors which include OEM’s. Mobile VAS companies had no option but to reduce their revenue share or price to be competitive. The lower revenue realization impacted their product roadmap. The initiation to consolidate product and partner through managed service model impacted many small solution providers. Broaden competitive environment within managed service provider and subsequent contract redefinition with mobile operator linking utilization and capacity as revenue KPI’s. The lower margin contract forced managed service provider to put on hold the expansion. Impacted public and private sector bank with exposure of more than $7Bn to the mobile operator who lost their license and shut the operation. It would impact the cash flow within the economy and increased NPA of banks. As a result, government started infusing equity capital to maintain minimum capital adequacy of bank. The higher interest outgo and decreasing capability to generate free cash flow attracted credit rating which impacting FDI in Telecom sector.
In conclusion, Spectrum auction in early 2000 landed Europe in economic recession and similarly 3G and BWA auction put mobile operators in tough financial situation. The follow up’s negative market dynamics impacted broader ecosystem negatively. The friendly regulation, taxation, lower spectrum base price would act as stimulus for Telecom sector not investor road-show.
