Is it the end of the telecom era?

Today I read an article on business standard, which reported Indian Telecom minister A Raja mentioning that local call rates may drop to something like 10p / min. I was wondering if it would do me any good. That’s because I enjoy free local calls to airtel already; to other operators its about 40p, and 1 Re to landlines (which I call rarely). If it were a few years ago, I probably would have been delighted by this news. But not today. My line of thought has moved to a different direction. While in italy, local calls costed me some 35 cents (Rs 20) on my Vodafone prepaid; and I couldn’t imagine using my mobile to make a call back home (2 Euros or Rs 114 / min).

I remember reading a report mentioning that local call rates are the lowest in India. That was some years back, when local calls were charged at Rs 2.40 or more. With increased penetration, it is evident that costs would reduce, adding to the revenues and falling ARPUs.

Bharti Airtel has an ARPU of Rs 359, and RCOM is close on its heels with Rs 339. These figures coupled with a national average hovering around Rs 300, the figures amongst the lowest in the world.

The industry has grown at 30-40% CAGR over the last 5 years; and investing in telecom companies was a sureshot win.

But it may not be so for long. With a wave new licences being issued to newer (and little known) operators, the market will only get more competitive. In my recent visits to some of the rural areas of West Bengal, I was amazed to find the Airtel signal strength at the remotest of the regions, though getting through was difficult during the evening (peak) hours. These new players can be expected to target such far flung areas, but this may not justify the massive investments required.

The value added services do not find so many takers as the voice services do. It is a niche segment, and applications on GPRS are only being explored by the early adopters. These services are expensive, and contribute significantly to the revenues. With competition coming, the operational margin may only demonstrate commoditization.

In spite of the growing concerns of commoditization; the vastness of the country can only serve as an opportunity. The teledensity in India stands only at 18%, as opposed to much higher numbers for some of the developed economies.

India still has a lot of catching up to do. Yet the astonishing numbers and jumping scrips may be a thing of the past, as Sunil Bharti Mittal mentioned.