By Anshia Dutta
Indias telecommunications market has grown immensely over the past decade and a half. The sector has a subscriber base of over 1.05 billion and is currently the worlds second-largest telecom market. India not only has the second largest smartphone market but is also the fourth largest app economy in the world.
Market size and investment
The shipments in the smartphone industry have increased by 23% year-on-year in the third quarter of 2017. The mobile industry is likely to create an economic value of Rs. 14 trillion by the end of 2020. During this time period, it is expected that the industry will generate 3 million direct and 2 million indirect job opportunities. Also, data usage doubled in the six months ending June 2017 to 3.7 million GB per month on Indian telecom operators networks excluding Reliance Jio. It is possible that over the next few years, 500 million new internet users will be added to the sector on account of low data costs. According to the data released by the Department of Industrial Policy and Promotion (DIPP), the telecom sector has attracted FDI worth $30.03 billion between the period of April 2000 to September 2017.
The reasons for the boom the industry is experiencing can first be attributed to the liberal and reformist policies of the Government. Secondly, strong consumer demand in the Indian telecom sector has been instrumental in thriving the sector. Thirdly, easy access to telecom equipment and a fair and proactive regulatory framework by the government has ensured availability of telecom services to the consumers at affordable prices. In addition to this, the deregulation of Foreign Direct Investment (FDI) norms has facilitated the sectors immense growth. It has made it amongst the top five employment opportunity generators in the country.
Issues in the telecom sector post Jios entry
Jios services were commercially launched on 5 September 2016. It had acquired 16 million subscribers within the first month of its launch. Since then, it has grown immensely, both in terms of subscribers and launching new services. Jio had around 130 million subscribers in October 2017 and 160.1 million subscribers as of December 2017.
Since its entry into the telecom sector, the market was sent into a frenzy. It started off with a cut-throat competition in reducing the prices amongst the leading companies which resulted in a reduction in the profit margins of all the companies and ended with a wave of consolidation that swept the industry. Prior to Jios entry, Idea Cellular Limited, Vodafone India Limited, and Bharti Airtel were the leading companies. But, post Jios entry, Airtel and Idea saw a staggering reduction in operating profits by about 35%. Later, in order to survive in the market, Idea and Vodafone merged. Next, Tata groups wireless phone business was acquired by Airtel and Telenor also sold its Indian operations to the latter.
The latest to join the list of troubled companies is Aircel. Aircel has filed an application for a resolution process under the Insolvency and Bankruptcy Code. The company acknowledged having to face troubled times owing to intense competition, legal, and regulatory challenges following the disruptive entry of Reliance Jio. The statement read, The Board of Directors of the Corporate Debtor today announced that they have filed an application under Section 10 of the Insolvency and Bankruptcy Code 2016 for undertaking Corporate Insolvency Resolution Process for the respective companies: Aircel Cellular, Dishnet Wireless, Aircel Limited. It added that the company sought cooperation from its stakeholders during this difficult time.
The move came as a result of the disruptive entry of Jio and the failed attempt of combining wireless operations of Aircel and Reliance Communications Limited on account of legal and regulatory uncertainties. Another reason is the unsuccessful aim to restructure its debt amounting to Rs. 155 billion. Aircel said, Post detailed discussions with the financial lenders and shareholders, the company could not reach consensus with respect to the restructuring of its debt and funding. Despite these discussions and the invoking of a Strategic Debt Restructuring scheme in January 2018, no agreement could be reached.
It requested the media to positively support the company as it will be one of the deciding factors for the survival of the company. The company further solicited continued services from its suppliers and partners. It also communicated to the customers that the company will make every effort to provide uninterrupted service connectivity and asked for their support.
The road ahead
Post the merges, the Indian telecom sector is expected to become stable than it was a year ago. Some of the weaker and small-scale operators are finding it hard to pay off their liabilities which has led to the government forming an inter-ministerial group to look into the matter. The consolidation of Idea and Vodafone has not borne fruit yet. However, there is a possibility of the two companies having 35% of the customers in the market and 42% of the revenue market share in the near future.
On the brighter side, according to a report prepared by GSM Association (GSMA) for Boston Consulting Group (BCG), the Indian mobile economy is growing at a rapid pace and will contribute substantially to Indias Gross Domestic Product (GDP) in the coming years. Also, according to estimates by Randstad India, the telecom sector is likely to generate four million direct and indirect jobs over the next five years. In addition to this, according to a report by leading research firm Market Research Store, the Indian telecommunication services market is expected to grow by 10.3% year-on-year to reach $103.9 billion by 2020.
Featured Image Source: Flickr