India aims to cut cellco numbers to six per circle
Telecoms minister wants to ease merger and spectrum rules to enable consolidation, creating more viable businesses
Published: 31 May, 2011
The Indian government is undergoing a massive review of the wireless industry, with proposals to break up state-owned BSNL and/or combine it with MTNL and to release swathes of new spectrum. Other ideas include new legislation to make mergers easier, in order to reduce the number of cellcos to six per operating region and make businesses more viable.
Many markets currently have as many as a dozen mobile carriers, and the ensuing price war has made India's ARPUs the lowest in the world - but those are often matched by low quality of service. With only the largest cellcos having significant 3G coverage, there are few opportunities for many 2G players to enhance their revenues, or the value they offer, when call fees average 0.7 US cents a minute. The largest cellco, Bharti Airtel, has ARPU of $4 a month even with 3G services, down from $10 in 2007.
In an interview with The Wall Street Journal, telecoms minister Kapil Sibal said this situation could be eased by allowing operators to consolidate, and by making more spectrum available. He is also considering new rules to permit sharing or outsourcing of underused spectrum.
He pointed to the difficult balance between encouraging affordable prices for mobile services, and enabling operators to make a profit. "Ultimately, technology is meant to serve a public purpose, so that objective cannot be lost… There was a time when the price of a telephone call was 90 rupees; now it's 50-60 paise," he said. "At the same time, the operator must get a return on his investment that is attractive, and the industry must prosper."
The downside of low mobile prices has been the lack of incentive for cellcos to invest in infrastructure and QoS. According to Prashant Singhal, head of telecoms at Ernst and Young India, wireless capex fell by 42% between 2008 and 2010, though the current wave of 3G build-outs by the large players will reverse the trend somewhat.
In one sign of consolidation, Reliance Communications said it has received several "formal indicative offers" to buy its controlling stake in the cell towers venture Reliance Infratel, which could help the cellco reduce its spiralling debt, which was INR320.49bn ($7.12bn) at the end of March.
Among RCom's options are said to be sale of stakes in Infratel, or an IPO, and possibly a stake sale in its overseas business unit, Reliance Globalcom. The aim is to be debt-free within three years.
Meanwhile, the latest proposal for ailing state telco BSNL is to split it into four regional 'zones' with financial autonomy and strict accountability in the case of poor performance. BSNL has been told to "synergize" its operations with those of MTNL, the state carrier in Delhi and Mumbai, though the government appears to have stepped back from the idea of a full merger, and has also taken an IPO of BSNL off the table (MTNL is already publicly listed). The first joint initiative by the two carriers is a special tariff plan offered uniformly to military agencies. BSNL is also looking for new revenues streams from leasing some of its spectrum to other operators, and like RCom may spin off, or sell stakes in, its tower operations.
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