Reviving telecom

Far from being the poster boy of reforms, the telecom sector is currently going through the most painful period since the first mobile call was made using GSM cellular technology in 1995. The sector is reeling under mounting losses, a growing debt pile, irrational spectrum costs and high government levies. The entry of Reliance Jio, which has disrupted the market with low-cost data services, has further compounded the woes of incumbent players. The combined effect is that a number of operators, including Reliance Communications and Tata Teleservices, have been forced to exit their loss-making operations. The crisis has also severely impacted investors, lenders, partners and vendors of these telecom companies. While the impact on subscribers has been limited thanks to mobile number portability, the bigger impact has been on employees. In the last year alone over 10,000 jobs have been cut as operators try to bring down costs. The situation is expected to worsen in the next 6 to 12 months as there are more operators in the market facing an uncertain future. Unfortunately for the people losing their jobs, the hiring scenario in other hitherto employment-heavy sectors like IT and e-commerce is bleak. While those in marketing or sales functions can move to sectors such as FMCG, telecom engineers and those on the technical side could be left in the lurch.

Ironically, all this is happening at a time when the Indian telecom sector is at the cusp of a major data revolution. Only 40 per cent of the country’s population has access to internet which means there is a huge demand for telecom services going forward. Telecom operators will be required to invest heavily in rolling out 4G networks for which capital and human resources will be required. But this silver lining can become reality only if some immediate steps are taken both by the industry and the Centre. The Government needs to lower the financial burden on operators. Apart from the nearly ₹5-lakh crore operators have bid to buy spectrum, they also have to pay annual levies like spectrum charges and licence fees, together amounting to nearly 30 per cent of their revenues. Given the humongous investments needed in the sector, these levies need to be brought down drastically. Second, the Centre must rationalise spectrum pricing. Forced expensive bidding puts the operators’ financials in a mess. While the auction mechanism must be retained, the Government should rethink the floor price especially for the 700 MHz band — critical for data services. Finally, exits and mergers need to get easier so that strong players are able to absorb weaker ones without destruction of value and assets created.

Operators, on their part, should start creating new revenue streams. The days of offering plain vanilla voice telephony service are over. The demand for data services is set to expand rapidly in the coming years. This provides an opportunity to revive the sector over the next 12-18 months.

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