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Reforms

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VoicenData Bureau
New Update

Value for the user, more co-operation, intense competition, market realignment,

M&A–possibilities are many. The second phase of our telecom reforms need to be

executed faster.

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A new era has dawned upon the telecom sector with the

announcement of the new telecom policy. After months of killing uncertainty, depleting

reserves, shrinking bottomlines, and intense lobbying, the telecom sector will now wake up

to a promising future. It is a true expression of our present system that a critical

infrastructure sector like telecom got entangled in the intricate political and

bureaucratic wrangles. The second innings has begun in the right earnest and the companies

are pulling up all the slackened strings to respond to the new regime of revenue sharing.

With the

increased competition, visibility, and reach, the telecom services are expected to move to

the more exciting world of fast moving consumer services.

The real objectives of the liberalized telecom

environment will now take roots. The focus of the companies will shift from doing rounds

of the corridors of power to developing world-class telecom infrastructure and providing

the best value to the customer. The present government has taken bold decisions that will

go a long way in building up the confidence amongst the industry and the investors. The

decision to allow the existing private telecom operators to migrate to revenue sharing

will change the face of the industry.

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With the switch over to the revenue- sharing regime and

multiple operator environment, in tune with the world-wide trends, telecom in India will

emerge as one of the hottest industry segments. It will also rekindle the interest of

large Indian corporates and telecom multinationals that had lost out in the previous

rounds of bidding. The validity of licences for 20 years will make the projects highly

attractive for the investors and sizeable foreign investments are likely to flow in. The

national financial institutions that had earlier shied away from funding the telecom

companies will also come forward to finance these mega projects.

With the entry of more players, the market for different

telecom services will open up in a big way since large amounts would be spent on market

development. The increased competition will result in aggressive tariff plans leading to

value maximization for the customers. The service providers will focus on building

high-value customer bases and retaining them since there will be an increased threat of

customers switching loyalties because of multiple options available. The existing players

who have been extremely cautious of the network expansion due to uncertainty will now go

all out to implement their roll-out plans to establish a formidable lead over the emerging

competitors. Larger chunks of population will get covered and even the existing customers

shall benefit from the extended coverage.

With the increased competition, visibility, and reach, the

telecom services are expected to move to the more exciting world of fast moving consumer

services. Besides this, as envisaged, the telecom sector will also emerge as one of the

largest reservoirs for a wide spectrum of employment opportunities.

The trend is

likely to revolve around the creation of regional telecom superpowers since it will lead

to developing synergy in business.

The trend is likely to revolve around the creation of

regional telecom superpowers since it will lead to developing synergy in business. The new

telecom policy has allowed direct interconnecti-vity between different types of service

providers including sharing of infrastructure. This will encourage the companies planning

major investments in telecom to go in for multiple services and build integrated networks

to reduce the infrastructure costs. To cite an example, the basic telecom operators will

also look at opportunities in the Internet and cable television services to maximize the

returns on investments made for building the backbone networks. Instead of deploying only

a telephony network, they would prefer to build up broadband networks capable of carrying

voice, data, video, and multimedia services. The advanced backbone networks, thus, created

would also be capable of being used for carrying paging and cellular traffic. The fixed

telecom service providers will, therefore, also eye the cellular services or will forge

strategic alliances for sharing the network with other cellular operators.

Likewise, the existing cellular operators will be in a

position to quickly roll out the paging services riding piggyback on their extensive

microwave networks and market these complementary services as a package. To optimize their

infrastructure costs, the operators would also evaluate the usage of the existing backbone

networks of power transmission companies, Railways, GAIL, etc., for carrying long distance

data and voice traffic. Building up regional networks will also enable the operators to

create their own corridors for carrying long-distance traffic when it is opened up for

competition from 1 January 2000.

Not only this, operating multiple services in a specified

area of operation will also lead to sharing of manpower, offices, and operational

overheads. The marketing costs can also be optimized since the companies can create a

single powerful brand for all the services. The players operating single service will have

to seek strategic alliances with each other for sharing infrastructure and marketing of

services to meet the challenges posed by the regional telecom superpowers.

With duopoly making way for multiple operators environment,

coming months are expected to witness major restructuring and realignment in the telecom

industry. It is very clear that India will, ultimately, fall in line with the

international trends. In recent times, the most advanced telecom markets have seen some of

the biggest corporate mergers and acquisitions in the history of telecom. And the coming

times are likely to witness many more. Some of the mega mergers and acquisitions announced

include a $70 billion acquisition of Ameritech Corp., by SBC Communications Inc., the $65

billion Bell Atlantic merger with GTE Corp. and $40 billion acquisition of MCI Comm by

WorldCom Inc., not to talk of the hostile Olivetti take-over of Telecom Italia.

With the

changing scenario, some of the fiercest marketing wars are likely to be fought in India

too, for controlling the larger telecom pie.

With the changing scenario, some of the fiercest

marketing wars are likely to be fought in India too, for controlling the larger telecom

pie. With the kind of investments required for basic and cellular projects, only companies

with deep pockets will be able to survive in the long term. The existing service providers

who have not been able to achieve financial closure and are keen on selling out will now

find a number of takers for their projects. The operators who have been able to establish

favourable brand equities and healthy subscriber ramp-up will be the favourites of the

companies looking at acquisitions and the existing players will now be in a position to

command the premium for their stakes.The major reasons for mergers and acquisitions could be

creating synergy of business, enhanced market capitalisation and valuation, take over of

established brands, faster access to new markets, take over of companies with

complementary assets and optimisation and sharing of infrastructure, manpower and brand

building costs. Despite the five-year lock-in period effective from the date of signing of

licence agreement, the companies have initiated the preparation of blueprints for the

future. A spate of mergers and acquisitions in the cellular services seems to be imminent

since most of the licence agreements for metro and non-metro circles were signed in 1994

and 1995 respectively. The basic service sector will either have to wait for the next

three years since most of the agreements were signed in 1997 or will have to come out with

innovative financial arrangements to achieve their objectives.

Major opportunities are also likely to be created for the

network equipment and terminal equipment suppliers who will experience a phenomenal growth

in the coming months after having seen a major slow-down in their business recently. The

anticipated growth in the telecom sector is also likely to open up ample opportunities for

the companies specializing in turnkey projects involving installation and commissioning of

telecom networks. In addition to this, multi-million dollar contracts for the maintenance

of these networks will also be awarded.

There is no doubt about the fact that the bold initiatives

taken by the Government have created tremendous euphoria amongst the telecom companies but

certain grey areas need to be addressed immediately so that the implementation of the new

telecom policy does not remain a distant dream. The Government, in close conjunction with

the TRAI, must take immediate decisions on the percentage of the revenue share, entry fee

structure for the new players, the number of players to be allowed in each service and a

concrete plan for the bidding process. This will open up new horizons and take India in

league with the telecom superpowers.
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The road ahead would then be clear and there would be no

looking back.

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