Indian Telecom Industry

The Telecom Industry in India has been facing multiple problems of 1) massive 2G scandal in which many telecom companies in India lost their licenses to operate 2) hyper competition with many new companies entering and starting a price war and 3) high spectrum fees imposed for 3G spectrum.

1) India has been rocked by numerous new corruption scandals and scams in the recent past. One of the biggest was the 2G Telecom Scam in which top ministers and leaders of the ruling party were involved. The 2G Scam resulted in cancellation of licenses of a number of companies which included foreign telecom giants like Telenor, Etisalat and others. While the guilty have managed to get bail in the cases as is the norm in India, thousands of job losses are happening as a result of the court rulings. Some of the companies have shut their operations while others are drastically reducing their operations.

2) The Indian 3G and Broadband Wireless Auctions resulted in a Massive Windfall for Government Coffers. The combined value of both auctions is around $23 Billion, which is more than double what the Government was initially expecting. Predictably it has left the Telecom Operators in the Red, with the Companies having to spend much more than what they had budgeted for. The Indian Telecom Market is Hypercompetitive with 10-12 Operators fighting for a share of the the world’s fastest growing market. The earlier 3G Auctions had depleted the Telecom Operators so severely that most of them dropped out of the Broadband Wireless Auctions. Idea, Vodafone and Reliance Communications dropped out of the race , with even market leader Airtel only winning 4 out of the 22 circles on offer.

3) The competition which used to be benign earlier with 4-5 big telecom operators turned into a hypercompetitive one, with the advent of new telecom operators like TataDoCoMo, MTS,Maxis,Etisalat and others. The newcomers totally changed the market through Extremely Low Priced plans (as low as 3c/minute) to lure customers from existing operators. With price being the only differentiator between the the 10-12 operators, it quickly descended into an All out Price War between the telecom companies with everybody a Loser except the Indian Customer.

This has all come to a head with some companies completely exiting the market and some like Telenor and Aircel reducing their operations in some states in India. The Indian market has nearly reached saturation with upwards, of 900 million connections for its one billion population. With its customers in stress, telecom tower and telecom equipment companies are too being forced to reduce, as their revenues drop sharply. Viom Networks a tower company has fired hundreds as one of its main customers shut shop.

Now telecom equipment companies like Alcatel-Lucent, ZTE and Huawei are also firing employees or cutting pay as their customers reduce their order sizes. Alcatel is going to fire almost 9% of its workforce of 1000 employees from its managed services division. Note Western equipment companies are facing a major challenge from the rise of the Chinese globally. They have already announced thousands of job cuts as losses mount. The relentless rise of Chinese telecom equipment and OEM companies has massacred telecom jobs in the West with major companies like Nokia, Alcatel and others firing in the thousands. Note Huawei and ZTE have become the nemesis of the telecom equipment makers which are showing losses in the last few years. These companies are not managing to compete with the low cost engineer advantage of the Chinese firms. Nokia is also firing thousands in its western factories in Poland and other places as it moves production to Asian factories. Note while Nokia has become unprofitable to other causes like Apple and Android, low cost phones from Asia is the biggest factor in its demise as well.

ET

Struggling French telecoms gear maker Alcatel-Lucent will lay off nearly 1000 employees, or 9% of its India workforce as part of a global restructuring drive to cut costs as deals dry up and demand for network equipment plunges, two senior executives aware of the matter told ET.

Bulk of the cull is likely to impact Alcatel-Lucent India’s key business support functions and its people-centric managed services vertical where nearly 7,000 employees are engaged primarily in maintaining and managing Reliance Communications’ countrywide CDMA and GSM networks and Bharti Airtel’s landline & broadband networks. The world’s largest gear maker Ericsson’s India revenues fell 39% in the April-June quarter to Rs 1,340 crore compared to the year ago period. Of the two Chinese gearmakers, ZTE has implemented a 20% temporary salary cut in its India unit to optimise resources while Huawei India has relocated 350 employees to work on foreign projects in absence of adequate business.