Tuesday, January 13, 2009

Impact of Economic Slowdown in Telecom Industry

Telecom industry is considered to be immune to the economic conditions to a large extent. In fact, it is said that the ARPU should increase as the subscribers will talk more than travel. We have observed that the subscriber addition has not come down (in fact it has increased in the last few months). Will it be fair to assume that there has been no impact of slowdown on the Telecom industry?

I believe that the credit crunch is hitting the telecom industry which will ultimately impact the subscriber addition and quality of service in the long run. The new operators have not even placed the equipment order and are still banking on arranging money from stake sale. Companies like Unitech and Swan that managed to sell the stake are not sure when the money would arrive. This has certainly impacted the new network roll-out.

Independent tower companies are facing the heat in terms of liquidity crunch and low occupancy. They are forced to abandon the roll-out plans or tie up with the hived off tower companies of the telecom players. The existing operators have also scaled down the roll-out.

The impact of the slower network roll-out would be felt in next 6-9 months when the capacity utilization would start to hit the ceiling, the quality of service would deteriorate.

However, the credit crunch could be a boon for the 3G tariffs. With the foreign players staying away from the auctions, the other players are also not expected to be aggressive in bidding. This would mean lower 3G tariffs.

Would like to get comments from the readers on their views of the impact of economic slowdown on the telecom sector in India.


Karanjit S. Chopra said...

Very interesting. Would you have any information/ trends on the immediate effect of the economic slowdown on rural India ?

Mohit Agrawal said...

Thanks Karan for your encouraging words. The way our data collection systems are designed, it is very difficult to get exact data on the impact in rural areas. However, there is enough anecdotal information that suggessts that it is largely unaffected

Arun said...

Do you think there wil be shift to usage based models at tower vendors/OEM ? Essentially the network equipment vendors will produce and install and then the tower operators pay out a portion of the revenue to them - thus minimizing capex and ensuring steady income for all ?

Mohit Agrawal said...

Arun, it is an interesting thought but I think the independent tower companies will find it very difficult to find viability in the current economic scenario. The increased site sharing and collaboration amongst operators on tower companies (read Indus) is forcing the tower companies to reconsider their grand plans for India. All the tower companies including the American Towers, Quipro, etc. are scaling down their plans.

The current business model also means that the operators pay only lease rentals with no Capex implication in case of renting a tower from a vendor. Utilization based business model is possible in the urban areas where the site utilization levels have stabilized. However, in rural areas, it would be difficult as the revenue share percentage would vary with utilization