The mobile service provider industry is facing tough time with the fall in the growth rate since December 2011. The industry which was growing at 15-17 million subscribers before December had to limit itself to 6-7 million subscribers per month.
Not only the growth in volumes, even the industry is in precarious state in terms of financial health with depleting profit margins, low returns on capital, intense competition and overt regulatory expenses. However, taking into cognizance the diverse consumer levels and preferences, operators continue to offer unique and affordable schemes and offerings for the sake of sustainability, said Rajan S Mathews, Director General, Cellular Operators Association of India.
The average revenue per user (ARPU) is one of the lowest in the world. There is hardly any profit in terms of margins. Even the Minutes of Usage (MoU) have been declining over the years and the operators have no option but to concentrate on volumes. Neither, service providers generating revenues on value added services. The Indian telecom market has not matured enough where voice can be subsidized by VAS/data services yet. It is also pertinent to note that the uptake of VAS and data services have not been very encouraging despite the recent launch of 3G services, he said.
Taking about the heavy costs, Rajan said, the industry is projected as a poster boy of economic reforms and the growth of GDP in the country; however, the challenges are manifold. Apart from the intense competition, the profitability and sustainability of the telecom industry is at stake due to high regulatory costs such as very high spectrum prices, cost of implementing security measures, mobile number portability (MNP), huge penalties arising under modification of contract terms and unreasonable expectations of the government from the operators.
Not to forget the high prices that the operators had to pay for 3G spectrum in the country; intense and grueling price wars and the fact that the returns on the investments have not been adequate till date. Further, the operators are finding it difficult to receive funds from the FIIs and banks that are shying away from the industry due to policy instability and uncertainty, he said.
In terms of policy framework, the industry is in dire need for a proper policy roadmap in place and needs immediate attention from the government to address these critical issues which are constraining the essential growth of the sector.
In terms of regulation, it is essential that a cost-benefit analysis should always be practiced before a policy/regulation is brought into place so as to mitigate the chances of excessive financial burden on the industry. It is imperative that the government takes a balanced approach while formulating policies so as to safeguard the consumer interest while ensuring profitability and sustainability for the various stakeholders of the industry at the same time. The government can also help reduce the financial burden of the industry from high fees, levies and other charges, which today amount to almost 30 per cent of revenue and are one of the highest in the world, Rajan added.
TRAI recent 2G spectrum pricing recommendation to the government also become worrisome to the operators, who were saying the tariffs, can be double in some circles, if the government accepts these recommendations.
If the prices rise, the consumer would further reduce the minutes of usage (MoU), which in turn will affect the ARPU and overall revenues of the industry.
Total connections in India: 919.17 million
Number of phones per 100 people: 76
New subscribed added every month: 15-17 million (as on December 2011)
Number of subscribers added every month: 6-7 million