Slow, Not Down

“My mobile phone bill has drastically reduced following the current meltdown
and job insecurity. I am trying to save maximum sum for my future instead,” says
Himanshu Vijay, an employee working with a leading BPO. There is no other better
way to understand how badly the slowdown has hit the people. If users cut down
on their phone bills then it becomes so obvious that the telecom industry would
be affected. How long will the telecom industry go strong if people start saving
on the phone bills. Is this also another reason for the declining ARPU?

Every action has an equal and opposite reaction.” (Newton's 3rd Law)

If we look at the present slowdown, it closely resembles this law. It should
not be forgotten that the market had been very bullish in the past few years and
the dip had to happen sooner or later. It has not been long that the Indian
economy has been hit by the slowdown, and everybody is already panicking.
Certainly, it cannot be denied that most sectors have been adversely affected
including IT, real estate and finance, but is the situation same for the
communication industry too?

But Nripendra Misra, chairman, Telecom Authority of India is optimistics, he
says, “India's telecom sector is strong enough to sustain and flourish in the
current bleak economic environment.”

For some, the situation has not been that bad but some say that it definitely
has hit them hard. The situation has been so bad in some cases that companies
started feeling paralytic even in these few months of volatility. But for the
telecom sector in India things are not that bad. However, one thing is for sure
that the slowdown will definitely be an eye-opener for people and would help in
seeing better and more innovative business models.

Telecom companies have constantly been stating that they are strong and would
continue to be so, but enterprises have definitely cut down on their telecom
expense.

Arun Gupta, group CTO, Shoppers Stop says, “We are reviewing the existing
spend and are optimizing our resources. We have gone for rationalizing our rate
plans with service providers. There has been negotiation based on volumes
generated and we are moving towards lower rate plans accordingly.” With so much
curtailing and negotiations, it is very obvious that the communication industry
will also be on the receiving end of the economic meltdown.

Time for Great Ideas

It has been continuously seen that companies are severely cutting costs
during this meltdown. Experts believe that there is a need to reduce overall
costs and expense in a smarter way to open new channels of business.

It is noteworthy that such kind of economic crisis can actually help to
proliferate new business models. A lot of business opportunities may pop up
owing to the market condition. At this point many companies are talking about
infrastructure sharing, and perhaps this would soon come up as a new trend to
leverage better business.

“Just like tower infrastructure is being shared, we will not be surprised if
a call centre is beginning to be shared. Also, complementary marketing campaigns
between two competing brands would also be a reality. As an organization, the
slowdown has affected our capital. Capital is not easy to come by anymore. We
have taken actions in advance to stay fit operationally and we will continue to
do so,” says EVS Chakravarthy, CEO, YOU Telecom.

Things might not be that bad in India, but in Europe and different parts of
North America, there has been a downward trend in the number of telecom
subscribers every quarter. Moreover, the enterprise and vendor segment for
telecom companies is under pressure as many corporations have put their telecom
modernization plans on hold due to the credit crisis. But there is a strong
belief among service providers and vendors that the telecom industry would
sustain the sub prime crisis.

“Indian telecom will not get much affected by this current slowdown. The
corporate or enterprise spending may reduce to certain extent because of the
budget cuts, however the growth numbers of mobile subscribers will continue to
remain the same” says Kuldeep Goyal, CMD, BSNL

Through the current economic wave, a lot of the companies are looking towards
intelligent business management. With appropriate efforts and concerted
approach, the challenges can be converted into opportunities. Following the
slowdown, the demand for various commodities is decreasing which has led to a
decline in the rates of major items. Companies are ready to adopt new business
models to grow in this phase.

For companies like Tandberg, unified communication comes as a very effective
way to balance their resources. “Embracing video conferencing in corporate India
is now part of larger trend, which not only includes corporate cost-cutting due
to higher transport and fuel costs and macroeconomic issues such as inflation
and turmoil in global financial markets, but also broader issues such as
becoming a greener company by reducing carbon foot print,” says Dinesh Sehgal,
regional director, Tandberg, India, Sri Lanka and Bangladesh. Enterprises should
invest in key technologies during recession which result in direct savings, and
RoI is much better. Even the channels should spend time on educating their
respective accounts to invest in a technology like video conferencing.

“India's telecom sector is strong enough to sustain and flourish in the current bleak economic environment” A Raja, minister of IT and communications, Government of India	“The Indian telecom sector is perhaps one of the few sectors that have remained almost unaffected by this adverse global trend” Nripendra Misra, chairman, Telecom Authority of India

In spite of all the speculations it cannot be denied that the Indian telecom
market has not been amongst the most vulnerable prey to the market melt. This
can be proven from the number of deals happening in the telecom sector. This
year there have been almost more than twenty telecom deals already. Not only are
the inland companies signing papers, but Indian telecom market holds such high
potential that international telecom companies are eyeing a share too.

Recently, Japanese telecom firm NTT DOCOMO paid a whopping $2.7 bin for a 26%
stake in Tata Teleservices and the deal values the company at $10 bn. Tata
Teleservices has already got a global presence, while still being the 6th
largest telecom firm in the country. This was not the only deal. The month of
November and December saw two more deals worth $2 bn in total. Norway's Telenor
picked up 60% stake in Unitech's telecom arm for $1.1 bn and Emirates based
Etiasalat paid $900 mn for 45% stake in Swan Telecom.

Some other service providers are adamant that the market would pay them good.
Companies like Aircel do not believe that that the meltdown would affect their
growth. “You don't see people get fired from telecom business. In this scenario,
the more you talk, more you get the opportunity. We are into expansion mode and
planning to launch our services in cities like Delhi before March 2009. Our
growth plans and strategies will not run off the tracks” says a senior Aircel
spokesperson on the condition of anonymity. No matter how much a company boasts
about their progress there is in no way that the rippling effects of enterprises
curtailing costs would fall on the service providers and vendors.

Is All Really Well?

Since market is inter-related, it becomes difficult to go only with the
verdict of the telecoms and rule out all the possibilities of the slowdown
hitting them. If the users tend to reduce their telecom spending, there will be
an invariable adverse effect on the revenues of telecom players. One of the
largest users of the telecom infrastructure is the BPOs. And BPOs are definitely
looking at cost cutting measures. Rajendra Sawant, CIO, Adventity says, “Any
cost investment that does not add to the top-line or the bottom-line of the
company have been rejected. We have renegotiated the telecom cost with the
vendors. Apart from that, we are very catious towards new investments. We would
go for only the need-based investments.”

Not only BPOs, other telecom users also face negotiations to leverage their
revenues. Looking at the other side of the story, a big question poses that if
enterprise is cost-conscious then how can there be no retrenchment on the
service provider and vendor front? Looking at the larger picture, there is a
dilemma as to where the market is actually going. Though it is early to state
the future of the telecom business, but one thing that we can be sure of is that
ripples will surely knock at the door of telecos.

The broader market sentiments are forcing the industry to take a deeper look
at the cost structures and capex investments plans. With the communications
industry making investments in large commitments for new licenses and network
infrastructure build outs, this is the right opportunity to optimize cost
structures and investment return norms.

“Incremental growth which will come at depreciated returns will force
the industry to carefully evaluate the RoI involved in employee productivity in
areas like customer care, IT and sales acquisition. Most organizations
will look towards the telecom industry to provide innovative offerings on S+S/Outsourcing/Managed
Services to transform their businesses,” says Amajit Gupta, director,
communications and media sector, Microsoft India.

Even the government and the regulatory board have the same views on the
telecom industry. The government strongly believes that the situation of the
telecom industry is much better than other sectors, and will continue to be so.
According to A.Raja, minister of IT and communications, Government of India,
“India's telecom sector is strong enough to sustain and flourish in the current
bleak economic environment. The country is well poised to surpass the set target
of 500 mn telephone connections by 2010 and there are big hopes on the rural
front as well.” Though there has been a lot of difference of opinion when it
comes to 3G, but the take on slow down does not seem to be different.

“The current global financial crisis is, of course, now one of the major
constraints on the pace of economic reform, but the Indian telecom sector,
because of its innate strength and resilience, is perhaps one of the few sectors
that have remained almost unaffected by this adverse global trend,” says
Nripendra Misra, chairman, Telecom Authority of India.

Subhendu Mohanty, country head, home & networks, mobility business, Motorola,
India,
expresses the same sentiment though he believes companies are on the cautious side,“Every company is taking a cautious approach in the present scenario. Many
are clueless about which way to go. However, opportunities exist in the sectors
such as broadband. There is plenty of hope for the telecom sector.” Sanjay
Jotshi, director, Channels and Enterprise, SAARC, Juniper expresses that there
will be a shift in gear, he says “The business models have a potential to
undergo changes where there may be a shift from the capital expense model
towards an operational expenses model.”

Vineet Sirpaul, Director, Nu Tek expresses a strong opinion,“It will be
foolish to say that the telecom Industry will remain totally insulated. We could
see an impact on the ARPU's of the service providers which might go down further
marginally due to the cost cutting measures that may be adopted by the
corporations.”

However, Dewang Neralla, director, Atom technologies reveals a brighter side
saying,“New demand drivers need to be created and this can happen, in the
current age, through disruptive technologies like mobile payments which would
drive mass transformation (and consumption).”

To safeguard the interests of Indian telecom industry, it is crucial that the
businesses and governments should not derail their strategies. Furthermore, risk
management should be taken as a key priority in the new system to take global
economies to the next frontier. Consolidation and virtualization would also be
important focus areas for the companies to gain flexibility and agility without
making huge investments.

Sudhir Narang, managing director, British Telecom says, “In such situations,
disruptive innovation and innovation in general leads to new operating models,
on a broader platform. Outsourcing is the general answer. In the network IT
industry, companies are now embracing concepts like SAAS, pay- per use/click
model, virtualisation, cloud computing etc. The answer lies in innovation.”

It is virtually visible. Irrespective of the fact whether governments and
industry acknowledge it or not, the footprints of downturn have benn apparent
across the globe. The US sub-prime crisis is being seen as the pressing reason
behind the present global economic meltdown. There have been many reports on IT
spend being put on hold and companies applying a strategy of 'wait and watch'.

The communication has emerged as the fundamental requirements of individuals
as well as organizations. It includes both voice and convergence of voice with
data and video. According to Trai, the total wireless subscribers of India stood
at 325.73 mn and overall teledensity stood at the 31.5% by October 2008. But
whatever it is there have certainly been some level of slowdown in the telecom
region. No matter how hard SPs try but it is very difficult to stay away from
the economic wave. They might be stronger than the rest but certainly there will
be a little unrest in the industry. Current ARPU and low quarter results show
signs of the patch the telecos are going through. But without doubt they are
doing better than their contemporaries owing to other positive factors.

The telecom industry does not fail to bet big on the existing opportunities,
and yet to tap rural India market, there is no assurance that they will be able
to generate similar revenue figures as it was earlier. 3G is here and any day it
would be all over the market like an explosion. With so many new aspects of
telecom in India, there is a bleak possibility for the market to collapse. The
economic slowdown might have raised the bar of job losses, but if to believe the
voice of the telecom industry it stands an outright exception. The players are
ready for the bigger game and to stay here for long.

Sunny Sen and Jatinder Singh

sunnys@cybermedia.co.in