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June 13, 2010Indian Telecom Opertors Cup of Woes
Indian Telecom Operators have seen Bad News hitting them one by one in a unrelenting way for the past one year
- First there was the Price War unleashed by New Telecom operators like Tata DoCoMo,Sistema Shyam Telecom and others.The 2nd round of 2G licensing has been mired in controversy with allegations of foul play as the new operators got the Telecom spectrum for a song.This allowed the newer Operators to Wage a Price War to Gain Subscribers from the existing Operators.The Larger Incumbent Companies like Reliance Communication,Airtel,Idea and Vodafone had to respond to the lower tariffs by lowering their prices as well.This resulted in a severe compression of margins and profits for all the companies involved.Companies with bigger marketshare were hit the most as is the case with a Price War.
- Next came the Number Portability problem which allows the switching of Operators without changing the phone number at nominal costs.Though this problem has been delayed by more than 6 months by the inept Telecom authorities, it still hangs like a Damocles Sword.
- 3G Auctions proved to be another huge burden with the auction prices for 3G spectrum far exceeding the expectations of both the Government and the operators.The Government made a Huge Windfall from the Auction and the Operators had no option but to bear it and move on.
Reliance Entry could prove to be the Final Straw
Reliance Industries (RIL) is India’s largest privately owned company which recently rescinded a no-compete agreement with the ADAG Group.This frees RIL from entering India’s fast growing Power,Telecom and Financial Services sector.RIL has lost no time in doing just that.It bought 95% stake in Infotel,a small no-name company which bought Broadband Wireless Access (BWA) spectrum in all the 22 circles in India for ~$3 Billion no doubt with prior assurances from RIL.Note RIL has a massive cash war chest and proven execution abilities.Its entry will surely be a huge headache for existing telecom companies as it will certainly aim at the No.1 spot.With Voice Communications fast becoming a commodity with little profits,Data Communications was supposed to be the next big Cash Cow.Now with RIL planning to take that over with plans of making a big splash in providing Data Services over Wireless Broadband,the Telecom Operators are in severe danger.Most Telcos have already rolled out wireline and wireless broadband services and earn a small fast growing chunk of profits from this segment.But with Reliance entering ,expect a major Tariff Decline in this segment as well.Good News for the Indian Consumer and More Bad News for the Telecom Operators.
Mukesh makes Rs 4,800 cr telecom foray – Yahoo
Five years after exiting telecom business, Mukesh Ambani-managed Reliance Industries Ltd (RIL) on Friday re-entered the sector by acquiring Infotel Broadband, the only company to have got the all-India broadband wireless access (BWA) spectrum. RIL will invest Rs 4,800 crore by subscribing to fresh equity capital and own 95 per cent equity in the company, making it a subsidiary of RIL. Mukesh exited telecom business in June 2005, when, following the settlement, Reliance Infocomm went to Anil, who changed its name to Reliance Communications.
This was a setback for Mukesh as he had conceptualised RIL’s first serious foray into telecom.Nineteen days after a May 23 settlement that nullified a non-compete clause between the brothers, RIL chairman and MD Mukesh was optimistic.
“We see this as next wave of value creation opportunity in the wireless broadband space,” he said. “This will polevault India’s economy into the digital world at an accelerated pace while creating next generation tools that will enhance productivity and will create world class consumer experiences.