Media spends from telecom unlikely to increase in near future: Experts
Senior stakeholders in the sector feel that the sector in general advertises a lot. In case there is an increase of investment in the sector, the capital will be channelised to set the infrastructure of the sector right
Published - 09-June-2014
The telecom sector has had substantial number of spats with the Government over the last few years. The 2G scam, retrospective tax dispute with Vodafone, spectrum allocation and other issues have rigged the sector and have also evoked criticism from global investors over the lackadaisical approach of the Government in handling key issues.
But the large size of the market and consistently rising demand has kept the sentiment of the large telecom players in India upbeat. In October 2013, the number of mobile users in India had crossed 900 million. The mobile density in India as of October 2013 stood at almost 74 per cent. Major telecom companies have placed their biggest bets on the huge market of the country which continues to expand.
The last initiatives taken by the previous Government, such as implementing the National Telecom Policy 2012 and allowing 100 per cent FDI in the sector have also given some respite to the sector. However, the impact of increase in FDI is limited in India till now as only Vodafone is keen to raise its stake beyond 64.38 per cent. Apart from this, the dismal state of the internet infrastructure is also one of the key challenges for the players. As per industry estimates, to increase data user penetration most of the telecom players have cut down their 3G tariffs by almost 80 per cent.
The stable mandate at the Centre has raised expectations from the Narendra Modi led Government. Ravi Shankar Prasad, who is also a very senior leader in the BJP, has been given responsibility of the sector. Players expect clarity on policies involving spectrum trading and sharing. Apart from this, there also needs to be a clear policy on mergers and acquisitions. In case there is a robust policy change which might also impact investment; will this imply a surge in media spends from the sector?
Is the sector already spending high?
Analyst and stakeholders tracking the sector feel that there will not be a major surge in the media spends and this will be not because the sector is subdued, but because the sector is already spending a lot on marketing activities. Airtel, Idea, BSNL, Vodafone, Aircel, Reliance, and Tata Docomo are major players in the market as of now.
Vodafone, Idea and Airtel continue to leverage on IPL in a very large way. In IPL -7, while Vodafone was the presenting sponsor, Idea, Aircel and Airtel had extensively bought ad spots. While Idea and Aircel were also principal jersey sponsors of few teams, their TVCs were visible throughout the tournament. Vodafone bought the title sponsorship of IPL on air for an estimated Rs 55 crore. The telecom player was also among the prime sponsors on-ground. The TVCs from most of the players are generally visible across all the genres on TV. OOH and print advertising has also remained robust over the last few months.
Shashi Shankar, CMO, Idea Cellular opined, “I don’t think there will be any surge in media spends post the stable mandate at the centre. The sector already is spending a lot and there needs to be no significant change made.”
Ankita Somani, senior telecom analyst said, “The telecom players already spend a significant chunk of their revenue on advertising. The advertising budgets are unlikely to increase in the short term and will remain same as earlier. Most of the players do not have robust profitability. Even if there is an increase in their revenues the money would be channelised into developing resources and getting infrastructure in place.”
Some senior stakeholders also feel that though the surge in ad spends could be seen in value but there is no scope of increase in volume.
A senior official at Airtel, who is not authorised to comment, mentioned on condition of anonymity, “Spends have been on the upswing usually. There is a lot of clutter in the sector and, therefore, advertising in Tier 1, 2 and 3 cities is already high. A stable mandate has got nothing to do with the media budgets. A new offering or package will see more advertising from a player. This could be in data usage or talk time. I see more spends on the former. But the overall budget will remain the same.”
Shefali Dinkar, senior telecom analyst from Equity Research opined that the sector priority would be to get its fundamentals of infrastructure in place rather than enhancing media spends. “Most of the telecom players are struggling with low network ranges in either of the markets or weak internet connections. The priority of the sector, in case there are some policy changes from the government, would be setting the infrastructure right. The advertising is anyways huge in volume due to telecom being a very cluttered and volatile industry,” she said.
As of now consolidation and restructuring are prime concerns of major telecom companies. Deleveraging through selling of some part of businesses can also be witnessed. As of now, any major announcement regarding policy, spectrum infrastructure or 4G has not been made from the New Government. Players and investors in the sector will be keenly watching the future developments, but media spends as of now should remain unaffected.For more updates, subscribe to exchange4media's WhatsApp Channel- https://bit.ly/2QUdLCK