The first question you are asked these days while exchanging your phone number with someone is whether you are active on any cross-platform message service such as WhatsApp and Viber.
This is not surprising. The telecom sector has come a long way from days when having a mobile phone itself was a style statement. With the number of Indians with access to telephones touching 933 million in 2013-14, India now has the world's second-largest telecom network.
Urban tele-density stood at 145.78% and rural tele-density at 43.96% in March 2014, as against 87.1% and 23%, respectively, in March 2009.
While the focus of telecom companies during the initial phase of privatisation was on adding subscribers, now the stress is on making money by offering value-added and data services. Revenue from voice accounted for 80% of the industry's total in 2013-14, though data has been growing at an impressive rate and will be a big driver of growth.
WHAT FUTURE HOLDS
Vinay Kumar Agrawal, equity research analyst, WealthRays Securities, expects big changes once service providers roll out 4G services. Also, with the launch of LTE 4G, a wireless data communications technology, and spread of smartphones, both tele-density and revenue from data are expected to rise sharply. The government's plans to build smart cities and go for massive digitisation will also increase data usage.
There could be new business opportunities too. "Earlier, the main business of telecom companies was to connect people through voice, text and internet. Now, the industry is looking at what more is relevant," says Jaideep Ghosh, partner, KPMG India.
One area of growth can be providing content. "My view is that value has shifted for each rupee spent by customers towards non-telcos. It is imperative for telecom companies to capture that value," says Ghosh. A good example was Bharti Airtel's recent move to charge customers separately for voice calls from its network using apps such as Skype and Viber. It, however, dropped the plan after opposition.
URBAN & RURAL GROWTH
With penetration level of 150%, not much change is expected in urban areas unless a new technology is unleashed or new companies enter the market. In rural areas, however, the focus is still on increasing usage. "Typically what happens is that customers first use voice services before migrating to data. While the current focus of data is on urban customers, telcos will aim to attract rural customers as well," says Ajay Srinivasan, director, CRISIL Research. For customers who do not have access to a computing device, mobile will be the first touch point for internet.
According to the National Telecom Policy 2012, the government aims to increase rural tele-density from 39% to 70% by 2017 and 100% by 2020. This aim, coupled with the government's desire to build 100 smart cities and focus on digitising India, may open a window of opportunity for telecom companies.
There is expectation that 4G services will help the sector expand margins. "Also, the demand for smart phones is expected to grow. Users are seen shifting to fast service providers, which will help the bigger companies increase margins. Wifi-hotspot services will get a boost," says Vinay Kumar Agrawal, equity research analyst, WealthRays Securities.
Some differ. "We do not anticipate major changes. We agree that 4G will give some competition to 3G but more so they will complement each other," says Srinivisan. He says more than 50% data usage in India still happens on 2G. "On the technology side also there will not be any major disruption because today you can offer a 4G-like service on the 1,800Mhz band also. If there is a lot of traction for 4G, existing operators can aim to provide a similar service by using the 1,800Mhz spectrum," he says.
In the telecom sector, government policy can make a huge difference. Among the recent policy moves, the Telecom Regulatory Authority of India (Trai) has recommended to the department of telecom to reduce the percentage of annual licence fee paid by operators which is used for developing the sector in rural areas. If this is approved, margins of companies will improve.
"The regulatory environment has definitely become better but it is not as if all issues have been resolved. The M&A (merger & acquisition) policy, for instance, still continues to be restrictive," says Srinivasan.
mosimageSpectrum availability and the price companies will have to pay for it continues to be a big worry. This was clear in recent spectrum auctions. In the first 10 days, the government managed to raise Rs 1,02,215 crore. With this, the government has managed to provisionally sell 87% of the total spectrum put up for auction. The government has decided to not declare the names of winners immediately and wait till the final verdict is passed by the Supreme Court in a related case. The auctions were important for many companies for various reasons. For example, licences of Idea Cellular in nine circles, Bharti Airtel in six circles, and Vodafone and Reliance Telecom in seven circles each are up for renewal in 2015-16.
Lalit Nambiar, senior vice president and fund manager (equities), UTI Mutual Fund, says, "It is difficult to say how much dent will a telecom operator take but past experience tells us that in auctions the actual price is always above the expected price. There is also a difference in perspective. While investors may consider the spectrum price high since it will dent profits or question its economic viability, the company may have a different opinion due to its longer perspective. Therefore, you may see a dichotomy between investor expectations on how telecom operators bid."
Looking at the industry, it is difficult to miss the change as India adopts latest mobile technology. As Vikas Singhania, executive director, Trade Smart Online, says, "Telecom companies in India are matured. We are as adept in mobile technology as other advanced countries and, therefore, this is one of the sectors where we are in the unchartered territory. My understanding is that since competition is cut-throat, telecom operators will need to focus on efficiency and adapt to changes faster to remain relevant." Of course only time will tell who evolves.