Investments in telecom sector by leading operators have decreased 50 percent in the last one year.
The lack of interest in the sector is reflecting in FDI as well. FDI in telecom sector in India was $1.7 billion in FY2011, down by almost 35 percent compared with $2.6 billion in FY2010, according to PWC.
FDI participation and increased capital expenditures by industry participants are the need of the hour, according to COAI. Current trends indicate significant reversal in FDI inflows and capex outlays implying strong headwinds for the industry.
The industry is at a critical juncture and the vision of increased teledensity and broadband for masses can only be met by enlightened and supportive policy provided by the government and regulator that reduces the cost burden on the industry and provides the needed funds required for the massive investments to take the nation forward,” said Rajan S Mathew, director general, COAI.
Mobile operators are experiencing declining financial performance. Increasing competition has resulted in reduction in average revenues per minute to INR 0.5 per call in FY2010 from a high of INR 7.3 per call in FY2000.
The minutes of usage per subscriber has decreased from 465 minutes in FY2007 to 369 minutes in FY2010. This has resulted in average revenue per user (ARPU) per month declining from INR 362 in FY 2005 to INR 105 in FY 2010 for GSM operators and from INR 256 to INR 68 for the same period for CDMA operators. While operators reported an overall growth in subscriber base by 43 percent between FY 2009 to FY 2010, the industry grew revenues only by 5 percent for the same period much less than inflation rate of 8.72 percent for the same period.
There has been a significant increase in network operating expenses besides governmental fees, levies, charges and penalties adding to margin pressures for the operators. India has a significantly high regulatory levy varying between 19 percent to 28 percent of the operator revenues.
Rising interest rates have resulted in increase in debt servicing costs for operators. Consequently operators are under immense margin pressures (several reporting negative PATs). Similarly, most operators report a negative or low return on capital employed.
The challenges are magnified for recent entrants and the smaller providers. On a combined basis these players have less than 5 percent of market share and clock only 2 percent of industry revenues. Most new entrants have launched services in less than 60 percent of the circles licensed to them. ARPU for new players is one-third that of the leading four players and half the size of mid-sized players.
Cellular Operators Association of India (COAI) commissioned a study from PwC (PricewaterhouseCoopers) titled ‘ndian Mobile Services Sector: Struggling to Maintain Sustainable Growth’. The report highlights emerging trends in the mobile services industry and their impact on the National Telecom Policy objectives of spreading affordable telecom services in the country.
The report recommends that the current ecosystem necessitates government intervention in order to meet the critical objectives of accessibility, affordability and sustainability laid out in the National Telecom Policy. There is a need to relook and redesign policies bringing them in alignment with the national objectives for this critical sector. The structural imbalances in the sector need to be rectified through proactive actions.
By Telecomlead.com Team
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