10 Make or Break Decisions for Indian Telecom in the Past Decade

As the old adage goes-opportunity knocks only once. And the Indian telecom industry has had its own share of highs and lows. Some decisions were take by telcos, which, if they were different, would have made the present situation look very different.

As 2010, the year that witnessed some remarkable milestones and also moments of shame, comes to a close, Voice&Data sat down with analysts to track the industry and look back to where telecom companies, government departments and other stakeholders took some decisive steps which shaped the industry into the way it looks today.

AT&T exits Birla-AT&T-Tata

Experts believe that AT&T's decision to exit Birla-AT&T-Tata (currently Idea Cellular) was one that the company perhaps must be regretting. Had it not done so AT&T's valuation would have gone up by almost 6 times. Idea's valuation today stands at about `23,000 cr.

Initially the Birlas, the Tatas and AT&T Wireless each held one-third equity in the company. But following AT&T Wireless' merger with Cingular Wireless in 2004, Cingular decided to sell its 32.9% stake in Idea. This stake was bought by both the Tatas and Birlas at 16.45% each.

Tata's foray into the cellular market with its own subsidiary, Tata Indicom, a CDMA-based mobile provider, cropped differences between the Tatas and the Birlas. This dual holding by the Tatas also became a major reason for the delay in Idea being granted a license to operate in Mumbai. This was because as per Department of Telecommunications (DOT) license norms, one promoter could not have more than 10% stake in two companies operating in the same circle and Tata Indicom was already operating in Mumbai when Idea filed for its licence.

Today Idea has come along way as a pan India cellular operator. It holds the 3G spectrum for 11 circles. According to industry sources, AT&T was looking at coming back to India for offering voice services.

Collapse of MVNO

In March 2008, Virgin launched the Mobile brand in India through a franchise arrangement with Tata Teleservices. So were born the great Indian hopes from MVNOs. Sadly, this concept did not make any great impact on the telecom industry. According the experts, Virgin Mobile has not been able to grow the way it had anticipated, and the brand is surviving in India due to support from the big brother-Tata Teleservices.

Virgin reports its subscriber base along with Tata Teleservices, and experts don't expect Virgin to be contributing a significant number to it. The industry feels that India needs to be more matured to see the success of MVNOs in the country.

RC's fails to woo Bharti

When BPL Mobile was going through a financial crisis, it made several attempts to rope in strategic investors. The company's attempts to raise funds for expansion also did not yield any result. Rajeev Chandrashekhar, who exited the cellular business later, discussed merger plans with Sunil Mittal-promoted Bharti Airtel. But valuation issues cropped up. Had the discussion resulted into merger/buyout, it could have made drastic changes in the fortunes of BPL Mobile which operates in Mumbai, Maharashtra, Tamil Nadu, etc

WiMax: Why Messed Up?

Tata Communications is known to have become the first player to launch broadband services on the WiMax platform on a large scale for retail consumers in India back in 2008.

In the initial phase it was planned that Tata Communications' WiMax network will offer broadband Internet access and content services to enterprise and residential customers in Delhi, Mumbai, Pune, Bangalore, Chennai, Hyderabad, Cochin, Chandigarh, and Kolkata.

In 2008, the company had outlined some $2 bn in capex over the next 3 years. About half the expenditure was to be directed towards building and expansion of WiMax network which was expected cover 15 cities by 2009.

The dreams for the operator turned into a nightmare when it was not able to win any spectrum which could have helped it roleout WiMax services to a broader section. By the time the BWA spectrum auction took place in the country, TCL had got WiMax operations in 5 cities and around 50,000 subscribers. It was one of the 11 players who bid for the BWA auction, sadly it just ended up with empty pockets. The company's management expressed disappointment over not having won any spectrum in the recently concluded BWA auctions in India and indicated that prices crossed their internal realistic valuations quite early in the auction process, and thus it opted out of the bidding. Experts say more meticulous planning would have saved the operator from meeting this fate.

Tata Communications was not alone in burning its the WiMax bid fire. Brutally aggressive bidding by the Mukesh Ambani-backed Infotel forced most of the spectrum hopefuls out of the broadband airwaves race. Reliance Communications, Vodafone Essar, Idea Cellular all drew a blank in the auction.

Vodafone joined WiMax forum assuming that it will be one of their businesses. However, it decided to step away from the BWA auction when prices went beyond rational levels, owing considerably to the artificial scarcity of spectrum with just two slots available and 11 bidders in the fray. Reliance cited prices significantly exceeding its business case estimates as the key reason for exiting the bid.

Seeking Exit

We can't forget the new telecom companies fathered by the biggest goof-up in the India telecom history. The issuance of 2G spectrum on a first come first serve basis introduced in the market a new clan of operators, who are now battling for survival. These companies had got the license causing the country a loss of roughly `70,000 crore, are now finding it difficult to sustain.

In mid-2010 Telenor, that operates as Uninor in India, said its operations in the country will see a loss of `4,500-5,500 crore this fiscal, and would face a further hit of `6,500-7,500 crore between 2011 and 2013 before breaking even. This is in line with its projections in 2008, when it had told investors that it would take a
`15,000-crore hit in India over 5 years ending 2013, before making cash profits.

Many of the new entrants are struggling to exist as the tariff wars in India's ultra-competitive mobile market have significantly lowered ARPU, making their businesses unviable. These companies, which include Videocon, Uninor, Sistema-Shyam, Loop, S Tel, Etisalat and Allianz Infratech, have all struggled with their rollout plans. Some of them have also approached the government, seeking exit options.

The dethroned telecom minister A Raja who was in the middle of the controversial creation of these companies even proposed an easy exit for them. The telecom department was considering allowing telecom companies with licences from 2008 to sell out or merge, paving the way for a possible consolidation in the 14-player domestic telecom market.

Telecom industry veterans find these 'bailout' plans flawed. These would be a double whammy for the government. It will result in double corruption, as some companies have cashed out. Raja sold mobile permits for cheap, citing competition, but none of the new entrants were a factor in the increased competition that the sector witnessed.

Big Boy's Troubles

In the financial year 2009-10, the market share of Nokia in India stood at 52.2%. A good 11.8% fall from 64% in the previous financial year. On the other hand, the market share of the Indian handset makers which, combined, was between 3-4% in the previous financial year, has grown up to 14%. Micromax mobiles topped the chart (of Indian makers) with 4.1% share followed by Spice (3.9%) and Karbonn mobiles (3%). Recent entrants such as Lava mobile, Lemon mobiles and Max mobile too are hovering around the 1% market share mark.

It does not take any great analytical acumen to understand what made these domestic players an instant hit. It was all courtesy the falling telecom calling prices and hence the need for dual sim mobiles.

For long and for reasons, best known to the company, market leader Nokia showed little interest in producing dual sim mobiles. Waking up just in time before things could worsen, Nokia announced its first round for the Indian user-that awarded the long time winner a lukewarm response.

The experts we spoke to were divided on the stance that Nokia took for the Indian market. Some say that for a big player like Nokia it is more important to envisage newer innovations rather than imitate smaller competition, yet you cannot ignore something that can make a huge impact.

Dual Confusion

Some experts suggest that CDMA investments by both Tata and Reliance proved to be futile as they later moved on to the GSM Technology, but a majority of specialists believe the dual technology can prove to be the biggest strength for the 2 operators.

Advantage or no advantage, the CAG, peeping into Raja's can of worms, has said the process of giving dual-technology licenses to these firms “lacked transparency and fairness” and equal opportunity was denied to other similarly placed operators who could apply for use of dual technology only after formal announcement of the policy.

Noting that this approval (dual-technology use) had violated the Cabinet decision of 2003 to allow additional spectrum at 2001 prices, the auditor said, “Deviation from a Cabinet decision should normally be with the approval of the Cabinet. However, in the present case, such a crucial decision to permit service providers to offer access using a combination of technologies (CDMA, GSM and/or any other) under the same licence with dual spectrum allocation was taken without the matter being referred to the Cabinet.

The list of such instances could continue, but these were some of the most striking ones that the experts could recall, and wished that the India telecom industry touches new highs.

Heena Jhingan
heenaj@cybermedia.co.in