Rising with the airwaves

Oct 29 2013, 05:16 IST
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SummaryGiven the current gloom in the telecom sector over high debt levels, falling average revenue growth per user, high licence fees and spectrum charges, it is not surprising that companies are wary of investing in this erstwhile sunshine sector.

Given the current gloom in the telecom sector over high debt levels, falling average revenue growth per user, high licence fees and spectrum charges, it is not surprising that companies are wary of investing in this erstwhile sunshine sector. The prospects are, however, pretty bright for the sector if the government takes a proactive stand. A report prepared by the Boston Consultancy Group for telecom operators industry body GSMA forecasts the telecom sector’s contribution will rise four times to R21.6 lakh crore ($400 billion) towards India’s GDP by 2020 and generate 4.1 million more jobs. The sector’s contribution to the government’s exchequer will also rise four times to R1.8 lakh crore by 2020 while infrastructure spending will quadruple to R48,000 crore by 2020. All this is possible based on the assumption that spectrum pricing and availability will improve, which can fuel growth in broadband services.

While the second generation (2G) technology still dominates India’s telecom space, the BCG study forecasts a rapid growth in 3G and 4G. Already, the growth in voice traffic has come down from 175% in 2005 to 9% in 2012. In contrast, the revenues from non-voice traffic have grown from R171 crore in 2005 to R4,930 crore last year. Although the number of 2G mobile connections has doubled from 347 million in 2008 to 798 million in 2012, the growth is likely to stagnate and subscriber base will come down to 750 million by 2017. In contrast, 3G and 4G connections will grow from 67 million to 409 million, at a CAGR of 31% in just five years. Spectrum pricing will play a key role in the growth of the telecom sector as international experience shows that low pricing of airwaves has been successful in some developed nations where ARPUs are much higher than India. TRAI’s recent recommendation of cutting minimum auction price by 40-60% for 1,800 MHz and 900 MHz spectrum is in the right direction in bringing reserve prices closer to global benchmarks, says BCG. The government also needs to do more in terms of releasing more airwaves, allowing spectrum trading and sharing, facilitating mergers and acquisitions, and slashing USO fund charges from the present 5%.

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