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Abu Dhabi, UAETuesday 19 June 2018

India telecoms in savage fight for market share

It is a fight for survival in India's telecoms market with the sector having the “largest debt with negative profitability” of Dh260bn, Reserve Bank of India says

A Aircel board seen in Calcutta, east India.  The telecoms sector in the country is in the midst of a brutal battle over market share. Piyal Adhikry/EPA
A Aircel board seen in Calcutta, east India. The telecoms sector in the country is in the midst of a brutal battle over market share. Piyal Adhikry/EPA

Pratyush Gupta, a student in Lucknow in north India, has been struggling since his mobile phone network suddenly stopped working last month.

He uses Aircel, an Indian telecom operator that filed for bankruptcy at the end of February.

“I can't make calls, can't text, do bank transactions, it has affected my work,” he says. “I tried to move to another network, but I can't without an OTP [one time password] and I don't want my number to be changed.

It is a sign of the malaise amid fierce competition in the telecom sector in India.

There were even reports of roads being blocked in the south of India last week because customers could not reach Aircel staff to transfer their numbers to a new network.

Aircel issued a statement as it announced its application for bankruptcy saying it “has been facing troubled times in a highly financially stressed industry, owing to intense competition following the disruptive entry of a new player, legal and regulatory challenges, high level of unsustainable debt and increased losses”.

There's enormous potential for India's telecom market, in the world's fastest-growing major economy, which boasts a population of more than 1.3 billion, a young demographic, and rising middle-class incomes. India is the second-largest smartphone market in the world behind China, according to technology research firm Canalys.

But the environment is extremely tough, particularly following the entry of operator Reliance Jio, launched by the oil-focused conglomerate Reliance Industries – controlled by India's richest man Mukesh Ambani - in September 2016. It stormed the market with cut-price data packages and promises of free calls for life.

It is a fight for survival in India's telecoms market. The Reserve Bank of India has described the sector as having the “largest debt with negative profitability”, with levels reaching 4.6 trillion rupees (Dh259.9 billion) at the end of the last financial year.

“The nature of the game has changed,” says Vijay Sokhi, the founder of Scico, a consultancy based in Navi Mumbai, which specialises in business launches and relaunches. “The gap that is there in the revenue versus debt, the government is one of the key players that really has to do something about it and if they do not do something, then this is slowly going to be widening further and further. It's a messed up market. There's cut-throat competition and the revenue is really taking a big hit.”

This is good news for many consumers, however, when it comes to saving money on their phone bills as operators fight for customers.

Amid this intense competition, there are now just four major telcos left in the Indian market: Bharti-Airtel; Idea-Vodafone; public sector BSNL-MNTL; and Jio, after some smaller operators shut down and mergers took place. This consolidation is helping those companies survive, analysts say.

“The year gone was marked as one of the most challenging years in the history of Indian telecommunications market,” says Inderpreet Kaur, a senior analyst for the central and south Asia telecoms, media and technology sector at Ovum.

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“Operator consolidation in the sector is unfolding fairly quickly. For operators, this would mean better pricing discipline, market share gains, improved networks and customer services as the industry moves to recovery in the latter part of 2018 or early 2019.”

Data and digital services are becoming far more important for these telcos, she adds.

“However, this shift towards data and digital has huge implications in terms of capex requirements.”

Dushyant Jani, the founder and chief executive of Mobclixs Technologies, based in Mumbai, points out that consolidation has resulted in fewer jobs. While 2018 could be “a year of growth”, much of this will depend on the remaining companies' “ability to find new revenue streams such as financial payments and streaming services”.

To try to address the challenges Indian operators are facing with large debt burdens, Narendra Modi's government on Wednesday unveiled a relief package for the telecoms sector. This includes giving companies more time to pay for spectrum in auctions and raising the limits on the spectrum that operators are permitted to hold. An inter-ministerial group was set up last year specifically to focus on the financial struggles of the telecoms sector.

“The sector is currently finding it difficult to manage its cumulative debt,” says Mr Jani. “The financial health of the telecom industry has to be safeguarded.”

He says that new rates and reforms of taxes under the current government have only added to the sector's woes.

There are some concerns that no significant positive impact will ultimately materialise from its plan.

“There are announcements, but practically nothing happens,” says Mr Sokhi.

The numbers are encouraging for the players that do manage to prevail in India's telecommunications market, however.

Sixty per cent of India's internet users access the Web on their mobile phones, and the number of smartphone users in the country is expected to rise to 702 million by 2020, up from 239 million at the end of 2015, according to Frost & Sullivan.

“The number of rural internet users will reach 280 million by 2018 as against 60 million in 2014, growing at 40 per cent per annum,” the company says in a report. “This new, tech-savvy population are actively embracing technology and increasingly depending on mobile internet for banking, education, entertainment, e-commerce and other activities due to enhanced awareness of developments, ease of work, accessibility, and cheaper devices.”

And 5G could be a turning point for the industry.

“We are keen to collaborate with other nations that are engaged in this endeavour, so we are a leader not a follower in assessment, refinement and adoption of 5G technology,” Manoj Sinha, India's telecom minster, said at a conference on Wednesday, the Press Trust of India news agency reported.

Mr Jani says that network providers in India are “striving to make 5G a reality as soon as possible”.

But, in the more immediate future, Ms Kaur says there will be some more pain for the sector.

“In the short term, telcos will try to gain subscribers from operators exiting the market to maintain their lead in subscriber market share,” she says. “This means industry will continue to struggle to establish any pricing discipline in the immediate few months.

And offering decent services to subscribers amid consolidation will remain a challenge, she adds.

“Maintaining good service quality with the increasing data load will require operators to improve capacity on access and backhaul networks and, therefore, [that will] demand higher capital commitment,” says Ms Kaur. “Operators will have to emphasise customer experience to retain subscribers to their data networks.”

Customer service is certainly key for Pratyush Gupta as he continues to try to resolve his connectivity problems. He hopes the industry settles down soon, so he will not face such a disruptive experience in future.