Telecom may not see more consolidations: analyst

BANGALORE, INDIA: The board of directors of Reliance Communications, India's second-largest mobile carrier, recently approved an equity stake sale of up to 26 per cent to strategic/private equity investors and an evaluation of other combination or consolidation opportunities.

Additional capital through a stake sale will provide Reliance with some much needed elbow room while planning for investments in 3G and BWA networks.

In the wake of the new development there is much buzz about more consolidations in telecom industry, which is expected to bring in more funds to operators who have holed their pockets in the 3G auction apart from operating with low levels of average revenue per user (ARPU).

CIOL spoke to Santosh Sathanur, senior analyst, Emerging Market Vertical, Ovum, to find if we can see more consolidations or equity sellouts in the telecom sectors and other major issues plaguing the telecom sector. Excerpts:

CIOL: Do you foresee the beginning of merger and acquisition era in Indian telecom industry post 3G auctions?

Santosh Sathanur: As far as mobile operators are concerned, the interest is always there. The kind of blockade from the regulator is the big concern. Reliance Communication has been a special case as they did not have any foreign strategic partner. All other private operators already have at least one strategic foreign partner. So, I don't think there is going to be any major merger at this point of time.

CIOL: Almost all operators are suffering from declining average revenue per user (ARPU). What measure can they take to improve the ARPU in near future?

Sathanur: Yes, almost all operators are suffering from low level of ARPU. With 3G also no significant jump is expected because India is a voice-dominated market, To improve ARPU, operators need to bring in a lot of localized content and interactive services.

With 2G and 3G if operators are able to model their service rightly, they will be able to drive a lot of revenue from mobile advertising.

CIOL: What are the long-term strategies that operators need to look at to increasing the ARPU?

Sathanur: Today, a lot of users just sign up to use the additional bonus minutes they get on new SIM cards and discontinue later. Operators need to adopt sustainable models that provide quality service and customer care in order to retain customers for long.

Vodafone has the highest ARPU because they are concentrating on enterprise. Target the niche and retain the same. Once an operator has a niche segment they start developing the content accordingly and this will ensure a sustained growth.

If an operator do not have a definite segment to target, they need to offer plans to please all, resulting in declining ARPU.

CIOL: Is there a need for intervention from TRAI or government to help operators increase ARPU in the wake of the price war?

Sathanur: TRAI or government should not intervene in price control in the market. Any healthy market is self- correcting. Where TRAI or government should work is on rationalizing various taxes on telecom players. Entry and exit barriers in the market needs to be simplified. That will ensure that operators do not bleed.

Can allowing foreign telecom operators direct entry into the market help in improving services?

Sathanur: Right now, not many foreign players would be interested. Now 74 per cent FDI is allowed in India. Rather than increasing it, what the government can do is to regulate and relax the entry and exit guidelines for operators.

The government has been treating the telecom sector as cash cow. Telecom is contributing  1.5 to 2 per cent to the GDP. Going forward, the government is reinvesting in terms of reducing the taxes and regulating the license-free regime, so that the growth seen in the telecom sector over the last 10-15 years is sustained.