Sunday, May 03, 2009

Indian Telecom – The Case for Faster Growth

Vasu Reddy from Chicago

Some 429 million or more users and adding quickly to this is quite an attractive case for faster growth. Government of India and the private sector should push for more rapid and positive changes in telecom. The positive effects on the overall economy due to the communications industry are enormous; 13,000 Crores of possible revenues for DOT in 2009, with 55,000 Crores of revenues in past five years, with a 15% estimated increase in the 2009 revenues to DOT for the foreseeable future. These are billions of dollars every year and just to the DOT as licensing fees from operators.

There is positive earning that contributes to income tax that further enhances government’s take from communications industry. There is no begrudging these numbers, rather the fantastic positive effect of the communications industry to the nation’s coffers. Every minute people are calling out to someone, there is revenue to the government.

There are government enterprises such as BSNL, MTNL and other communications players that further add to the revenues, along with huge market valuations on the enterprises. As these public enterprises are well funded and well capitalized, their market valuations are equal to or better then a private enterprise. If there is a quick need for raising capital taking BSNL public will create a huge inflow of cash into the coffers.

For more than a year 3 G license auctions have been close to being held and they could happen in 2009. This will again add another 20,000 to 40,000 Crores to the government coffers. And added to the initial fees, the additional networks will only drive the user growth in areas where there is network congestion, and need for additional value added services. 3 G networks will certainly add a higher value per user which again adds to total revenues and to the DOT take on fees collected.

Adding all these thousands of Crores is an exercise that will delight the finance ministry as well as the government which is just finishing the elections, and start spending to meet those wonderful promises made to the public to get their votes. Budget deficits can be trimmed or eliminated so that real development programs can be funded rather then paying interest on past debts.

The government should focus on making telecom a priority and implement every possible policy that fosters the industry for faster growth. Spectrum allocation, M&A practices, new license auctions, adding the rest of India to the telecom footprint and separating the military network needs with civilian network needs; all of these should be handled expeditiously. Making telecom regulation and issues a national priority will help with a multitude of positive influences on the economy. India is a nation that focuses on IT exports as a big external source as a revenue generator, should focus on telecom as an internal revenue generator. If the industry is well managed and regulators focus on problem solving rather than fixing past issues, the opportunity is there for telecom industry helping the national owes with many areas including budget balancing, employment and communications.

Some nations have achieved 100% mobile penetration and 120% plus in telecom user base. India can do it with very little effort. Indians are very adaptive to the mobile and fixed networks, and if available we will be a billion users plus country.

The budget process focuses too much on software and IT exports, while telecom revenues are growing furiously. Telecom will and should compete for being the top revenue generator for the government. Faster growth in telecom will make it the biggest revenue generator for the government.

Telecom creating better employment opportunities is obvious. With each ten to fifteen million users added every month, thousands of jobs are also being added to support the growing user base. Construction of new infrastructure, sales and marketing, accounting, maintenance services, management and support services are all added every month with the increase in users and thus bringing educated workforce to contribute by paying personal income taxes. They also bank with credit and debit cards, buy products on installments and add to the circulation of more and more money every month; increasing the consumption and production of every industry in the country.

Telecom companies have solid management teams, and compete with each other with style, substance and services. The partnerships in all major private enterprises consist of who’s who from the global pool of investors and operators who enhance the already talented Indian management team. Each of these teams will never cease to rest in loading more users and attaining better profits for their investors; only way they can do it is being better at providing products and services that retain and grow their user base. At this moment they have a lot of room to grow and prosper in the Indian market.

Indian government should immediately seize the opportunity and focus on the telecom industry, and help it grow faster. Regulators and politicians can handle this segment with utmost care and sensibility to help faster growth and uninhibited competition. For sure the regulators and industry will argue that they are focused on telecom and making things easy for new competition, but not enough has been done to simplify the regulatory environment. There is continued ambiguity with fee structure, differences of opinion of spectrum management, entry and exit issues, competitive imbalances and poor regulatory management. The industry has prospered and contributed despite these continued and nagging issues.

In the just concluded elections, people were promised everything on earth for free, but no politician promised a free mobile or subsidized talk time to its constituents. If there was a freebie that would have attention of the people, it would have been a free mobile with lifetime service contracts. As all incoming calls are free in India, it would have been a great giveaway, but the election commission might have had a fit about such giveaway. The government could have been smart enough to give them away and have argued that they were keeping people undated of weather or something useful like commodity prices or something of that sort. Fun aside, the telecom business is a serious business with positive implications for the nation for a long time to come.

May 3rd 2009
Vasu Reddy
Optus Technologies, Inc.

Pulse of the People Vasu Reddy From Chicago In the last couple of weeks I did predict that Modi will come back to be the prime ministe...