CII predicts tough time for telecom sector

CII-McKinsey presentation held in last week of April, at the policy forum by CEO of Confederation of Indian Industries (CII) on communications covered some of important and debated issues in the telecom sector. According to McKinsey, the Indian telecom market is likely to go through tough times, over the next three to five years, during which operators will find it difficult to grow their business and create value. 

The key factors are limited and price sensitive customer base, wherein the small, under penetrated market makes it difficult to cherry-pick. At the same time the services need to be priced below a threshold level to be affordable for the mass market. Secondly, it is a highly competitive operator market and the regulatory regime encourages and fosters competition as is evidenced by intense activity in certain sectors. The incumbent's i.e., MTNL, VSNL and BSNL will continue to dominate market in the future. 

Thirdly, the funding situation will be tough, since infrastructure rollout and network build-up is unlikely to be met from internal accruals. And external fund raising is constrained by meltdown of the stock markets and other priorities of likely investors. Fourthly, Indian telecom regulatory policy has tended to be inconsistent detracting from the investment climate. It was also mentioned that several areas still lack clear regulation and forthcoming regulation in these areas is bound to impact existing players and would have reason to be wary.

In other deregulated markets, according to the presentation, incumbents have been able to maintain their hold in wire-line services, while attackers have succeeded in the new services like wireless and data. The features of the winning entrants would be--Access to capital and international capabilities; strategic acquisition or partnerships with incumbents; leadership with strong track record and geared to performance; clear exit strategies for value maximization.

According to McKinsey, there is a clear definition in the need for regulation in telecom sector. But the path taken in India has led to some unintended consequences. However, deregulation has succeeded in services for example ISP's where the regulation has minimized the regulator's role. In order to have a highly competitive regime, the regulator needs to define clear-cut objectives that drives the policy making and also towards the rapid increase of tele-density, which could be achieved by lowering the cost of service.