Telecom Losing its Sheen

Considered to be a shining sector, Indian telecom is undergoing its worst nightmare, and with each passing day, the 2G scam is becoming murkier. It is almost a year since the scam broke out but nobody is seeing light at the end of the tunnel and everybody is curious to know when all this will come to an end.

It seems that Indian telecom is at such a crossroad where it is difficult to predict when the current scenario will come to an end, but I believe it will be the court verdict which will put to rest all speculations, provided this scam does not go to higher courts for a final verdict. But the way things are progressing, it seems the impact will continue in 2011.

All this is affecting the telecom sector as decision making has taken a back seat and nobody wants to take any new decision. It seems even the new telecom policy has been shifted to October, and even this is not certain as a lot will depend on the court's verdict. A lot many decisions related to operators are still pending with the department of telecommunications, and nobody is planning to take a decision as they fear enquiry. The government needs to do something to see that the sector, which still contributes the second highest revenue to the exchequer, does not limp, but at least walks, thereby giving confidence to the investors so that things can slowly improve and come back to normalcy.

It seems a lot of telecom IPOs, be it IP-1 (infrastructure provider) and handset players are on hold as market sentiment is not conducive for the share market. Even banks are not willing to fund new licenses as they do not know what would be the outcome and it's a wait and watch approach for them. Not only this, with the Reserve Bank of India increasing repo rate by 50 basis points, there is an increase in cost of funding as banks are charging higher lending rates. So, corporates are finding no respite and all this has started affecting operators' profitability.

With profitability going down, the operators are now focusing on restructuring their business and cutting extra flab by cutting down on manpower. All this is putting extra pressure on operators and this is not a good sign as operators have put a halt on new city expansion for 3G and 4G, the focus is more on getting increased revenue from existing customers. And for this, the incumbent companies are increasing their prepaid tariffs to boost their revenue whereas new operators are still debating whether to increase their tariffs or not.

Pravin Prashant

pravinp@cybermedia.co.in