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The Indian telecom industry, having weathered one of its most turbulent years, is looking at a more stable twelve months where tariff wars will ease out, revenues from customers will increase, companies will assemble their merged entities and go slow on its shopping spree. The sector, with its three big players, will instead focus on data, innovative services and other forms of business within the industry keeping the customer in mind.
“Fitch’s ratings for the Indian telecom sector has been revised to stable in 2018 from a negative in 2017,” said Nitin Soni, director at Fitch Ratings. Soni expects the average revenue per user (ARPU) — a key industry parameter — to increase by 5-10% in the coming year.
“Telcos will stop promotions and discounts and focus on return on investments,” said Soni. ARPU in the September quarter had plummeted by 40%, compared on a year-to-year basis because of the severe tariff wars that erupted after Reliance Jio Infocomm’s (Jio) entry in 2016.
The ratings firm said the industry, which has become a three-player market, will garner 90% of revenue market share, against today’s 85% after smaller players exit, leaving the larger ones with more control.
“2018 will be an important year for telcos and tower companies alike, as the national telecom policy (NTP 2018) will be unveiled, paving the way forward for a conducive ecosystem,” said Rajan S Mathews, director general of Cellular Operators Association of India (COAI). He said that consolidation in the sector will take firm shape and eventually result in improved margins for the telcos.
“Telcos may also look to sell their tower assets to fund capex, which along with consolidation among different infra providers would lead to the emergence of 3-4 independent infrastructure service providers,” said Mathews.
Data is key
In 2017, telecom operators flooded subscribers in the market with data offers, and next year’s going to be the same. “Data will remain the key focus area for the industry and operators will continue to target higher data usage and deeper penetration of data services. Data stickiness can allow for calibrated price increase,” said Harsh Jagnani, vice president, ICRA.
According to industry analysts like Jagnani, concentrating on data will open up avenues for Internet of Things (IoT) which will eventually be a good growth potential in areas such as home automation, connected cars, healthcare, retail, energy management etc. “Since connectivity is the backbone for IoT, it is a natural fit for the telcos,” he said.
The telecom industry, reeling under a debt of ?5 lakh crore, will continue its battles with debt in the coming months despite the expected rise in profits and revenues. “While the industry looks to be heading towards an oligopolistic structure, the exact structure and the operators who remain will have to be seen. Till the time stabilisation is achieved, debt on the books of struggling telcos remains at risk,” said Jagnani.
To retain its customers, operators will offer more data-voice bundled schemes and partner with content developers to drive data consumption through web series and other formats in 2018. Research firm Counterpoint Technology Market Research said that telcos that tie-up with content providers will manage to get significant portion of voice-only subscribers to use data services, as more subscribers latch on to data.
“In 2018, we can expect more collaborations among mobile phone OEMs and network operators,” said Hanish Bhatia, senior analyst, devices and analytics for Counterpoint Technology Market Research. After Jio rolled out its feature phone, incumbents have entered into tie-ups with smartphone makers to offer phones at lower tariffs.
“This is primarily targeted at bringing down the initial cost of entry-level smartphones and entice feature phone users to switch to smartphones. The scheme includes cash backs from operators which are realised over a period of time, while operators lock in the subscriber for 2-3 years,” said Bhatia.
New business model
There will be a push towards newer models of business such as mobile virtual network operator (MVNO). These companies buy telecom services (calling, data, SMS, etc) from existing telecom operators, and provide differentiated services to the subscribers.
“MVNOs can penetrate the already competitive market by focusing on value-added services in tier III cities and rural areas,” said Bhatia.