While everything augurs well for the telecom industry, not all of it augurs well for everyone in it. Research firm Gartner's prediction for the year has said only four players will survive and thrive through the year.
And their four chosen ones are the Bhartis, Reliance, Tatas and BSNL; quite shockingly, the Hutch group is not included, and one does not know whether Idea Cellular (in which the Tatas, AV Birla group and AT&T wireless are equal joint venture partners) is included when Gartner names the Tatas. Or whether Gartner expects that at some point, Idea's services will merge with those of Tata Teleservices.
A Crisil industry outlook on the sector too, makes its prediction on the same lines. That the scene is a dire one for the smaller and marginal players. Despite the top five of the 13 wireless operators in the country accounting for about 80 per cent of the market, the Indian market is the most crowded, in comparison with other markets in Asia, says Crisil.
The number of operators per circle is six in India; as opposed to two in China, three in Thailand five in Malaysia and three in Indonesia. Not surprisingly, this competition has lowered tariffs in the country with a 300-minute basket costing the Indian customer $16 as against $21 in China, or $40 in Malaysia (even with five players jostling for business), points out the Crisil report.
Going forward, Crisil expects tariffs to remain under pressure. "This will be especially so in the prepaid segment, which constitutes around 85 per cent of net additions, as CDMA operators such as Reliance and TTSL are expected to introduce their prepaid services. Roaming tariffs have already fallen sharply, notes Crisil. And the pressure on tariffs and the growing proportion of marginal users will further reduce the operators' Average Revenue Per User (ARPU)."
Even the second largest player Bharti has suffered diminished ARPU, which has fallen 43 per cent in the last six quarters and average realisation per minute by 64 per cent; however this fall has been cushioned by a 57 per cent increase in usage minutes, says CRISIL.
Smaller operators are not that lucky. P. Ramesh, Head, Infrastructure Ratings, CRISIL, says, "Players still need capital to roll out fresh networks, and an individual operator's efficiencies would determine any improvement in its credit profile."
With 60 per cent to 70 per cent of the operating costs (excluding licence fee) of the leading players fixed or semi-fixed, this implies that the larger players who have economies of scale will be able to cushion the impact of falling realisations per minute on their margins at the earnings before interest, tax, depreciation and amortisation levels. Whereas, smaller players would be pushed to the brink.
Already some players have been bought out. Sterling group's Aircel (itself a one-circle but successful player that has bucked the general trend) has bought out RPG's Chennai circle; Escotel has been gobbled up by Idea Cellular; those smaller players still holding out are being cajoled and coaxed on the price front by the larger players.
"The scene is really bad for the smaller players," says an executive in charge of his corporate group's telecom concerns. "If they are hoping to sell out for a good price, and holding out on that count, they still don't have it good. We have worked out the ceiling price above which we will not go. Because equipment costs have fallen so much, it makes sense for us to roll out fresh networks rather than buy out an operation at a higher cost."
At the end of the year, after the cannibalisation, the industry will know whose strategy has proved to be successful, and whose has not, he adds.