Telcos shift focus to better return on capital
26-08-2011
Its no more a numbers race. What's the point in having an inactive SIM as a "subscriber"?
Its now quality rather than quantity for India's telecom operators. Return on capital is the key. With their balance sheets deeply scarred by the hypercompetition of 2010-11, telecom operators are now releived that there's no more tariff competition, and consolidation of the industry looks imminent. "Sanity has returned to the market" says Bharti's CEO Sunil Mittal.
Signalling this, Bharti raised tariffs in six circles by 20% in August. Vodafone, Tata DoCoMo and Reliance Communications followed. At current rates, demand would be price inelastic, so that better revenue margins look probable.
The new telco entrants had disrupted the industry by offering below-cost rates. Even after the advant of MNP, it's now clear that their strategies hurt them more than it hurt the majors. They have scaled down their capex for 2011-12. Some of them are under investigation by the Enforcement Directorate over their entry strategies. The new telecom policy, currently scheduled for the year-end, will include a mergers-an-acquisitions policy which will facilitate consolidation.
Another signal of the new environment: a fall in numbers growth. GSM subscriber addition dipped to 7.6 million new users in July. This is the lowest number of new subscribers added by GSM players since June 2007. This is also the fifth consecutive month when the numbers have fallen.
COAI sees this as a shift to quality over quantity: "Rollouts into rural areas are getting tougher and operators want a better return on investments, so are now focussing on quality than quantity" Mr Rajan Mathews, Director General, COAI, told Business Line.
The dip in numbers is also due to lack of competition among operators on tariffs, which has cut down the number of dual SIM users. None of the operators has offered any new deals on tariffs for the past six months. This has, in-effect, brought down the number of subscribers who take multiple connections.
Its now quality rather than quantity for India's telecom operators. Return on capital is the key. With their balance sheets deeply scarred by the hypercompetition of 2010-11, telecom operators are now releived that there's no more tariff competition, and consolidation of the industry looks imminent. "Sanity has returned to the market" says Bharti's CEO Sunil Mittal.
Signalling this, Bharti raised tariffs in six circles by 20% in August. Vodafone, Tata DoCoMo and Reliance Communications followed. At current rates, demand would be price inelastic, so that better revenue margins look probable.
The new telco entrants had disrupted the industry by offering below-cost rates. Even after the advant of MNP, it's now clear that their strategies hurt them more than it hurt the majors. They have scaled down their capex for 2011-12. Some of them are under investigation by the Enforcement Directorate over their entry strategies. The new telecom policy, currently scheduled for the year-end, will include a mergers-an-acquisitions policy which will facilitate consolidation.
Another signal of the new environment: a fall in numbers growth. GSM subscriber addition dipped to 7.6 million new users in July. This is the lowest number of new subscribers added by GSM players since June 2007. This is also the fifth consecutive month when the numbers have fallen.
COAI sees this as a shift to quality over quantity: "Rollouts into rural areas are getting tougher and operators want a better return on investments, so are now focussing on quality than quantity" Mr Rajan Mathews, Director General, COAI, told Business Line.
The dip in numbers is also due to lack of competition among operators on tariffs, which has cut down the number of dual SIM users. None of the operators has offered any new deals on tariffs for the past six months. This has, in-effect, brought down the number of subscribers who take multiple connections.
