Outlook for Indian telecom in 2010

The Indian telecom market came of age last year, growing into one of the world’s fastest growing and most competitive markets. But intense competition in the wireless-dominated country also forced operators to lower tariffs to the very brink of sustainability. As a result, 2010 will see operators pursuing new revenue-generating opportunities, as well as more drastic measures such as mergers and IPOs.

Here are our predictions for this pivotal year.

1.      Tariff stability: Operators are unlikely to further decrease cellular voice tariffs. Pricing has bottomed out, and incumbents have responded with per-second voice and per-character SMS billing. With ARPU already falling below $2, any further cuts will be unsustainable. But if the DoT proceeds with its plan to reduce the interconnect fee by Rs0.05 per minute or higher tariffs may be lowered by a commensurate amount, as operators pass the savings on to consumers.

2.      Early M&A: The over-saturated telecom market will begin to consolidate, with at least three significant mergers taking place before 1H11. Regulators will move to facilitate this, and have legislation in place by mid-2010. One likely merger candidate is Idea Cellular.

3.      3G and BWA further delayed: Despite press reports to the contrary, operators will not even launch 3G and BWA services until the very end of 2010. Government agencies are ill-prepared, and the ministry of defense and the DoT have been warring over the control of spectrum. The compromise of releasing spectrum blocks on a staggered basis will leave most potential players – particularly international telcos – dissatisfied, limiting the success of the auction.

4.      MNP will not make a splash: The thrice-delayed mobile number portability regulations will take effect in April, but will turn out to be a non-event. There is more than enough competition on the ground, with 12-13 licensees per circle.

5.      Data Bundling: The year could see the introduction of the fist voice/data bundling options from the Big Five operators. The current data market is profitable enough not to need this, but the vacuum left by the 3G delays could spark competitive pressure to expand the 2.5G data market.