India: Seeking regulatory clarity

Abhishek Chauhan/Frost & Sullivan Source
22 Aug 2012

The India telecom industry has been the poster child for the economic reforms in the country and has made significant contributions to the socio-economic growth of the nation. However, for the past two years the industry has been fraught with many operational and regulatory hurdles, which have severely diminished the investor confidence in the country's telecom sector.

The industry has been hit with policy issues, with various factions of the ecosystem often at loggerheads.The 2G spectrum scandal and cancellation of 122 licenses have resulted in a lot of chaos amongst the various factions in the industry. The Telecom Regulator of India (TRAI) has further added to the murky sentiments by fixing an unreasonable base price for the 2G spectrum re-auction. Foreign investors like Batelco and Etisalat have already stopped operations, and others like Telenor and Sistema are threatening to invoke international bilateral agreements to counter the retrograde stance of the policy makers.

The regressive policy standoffs have had far reaching impacts on the telecom industry, with equipment vendors, value-added service providers and telecom tower companies suffering huge setbacks and reductions in business. In fact, tower companies like Viom are set to lose over 25% in revenues due to the cancellation of the licenses. Cancellation of licenses also means that many long-term debts of the telecom companies are likely to be written off by the lenders.

For the past few years, mobile operators have been facing a lot of pressure on sustaining their operator margins. Introduction of new telecom operators in 2008 and aggressive price wars in 2009 have unleashed a regime of rapidly falling ARPUs.

Despite the unprecedented growth in the subscriber base, the profits after tax of many operators have been declining constantly. The new spectrum mandates, including an excessively high spectrum base price, necessity paying a one-time fee for spectrum held by the incumbents, which has further dented the morale of the sector. Furthermore, operators have spent billions of dollars on procuring 3G/BWA licenses and setting up the networks as well.

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