“…The legacy of the past has been that, at this point, we have around 12-13 players in each circle. This is not a healthy trend for several simple reasons. For one, if there are too many players, spectrum can’t be used efficiently. Two, the tariffs have come down far too low, which is very good for the consumer, but ultimately if companies don’t make a reasonable profit, there would be no further investment in the sector. So to ensure efficiency, equity to the consumer and reasonable profit to the operator, we need to consolidate the market,” India’s Minister of Communications and Information Technology Kapil Sibal recently told an Indian weekly magazine in an exclusive interview.
The statement above explains some of the important features of the Indian government’s draft National Telecom Policy – 2011, like the policy on mergers and acquisition and the exit policy for operators, which are directly aimed at consolidating the crowded telecom sector in the country. India has 15 players while the world’s biggest market, China, has just three.
The new policy will “facilitate consolidation in the converged telecom service sector while ensuring sufficient competition,” Sibal said while unveiling the policy.
The government’s decision to delink spectrum in respect to all future licences and make it available at a price through market related processes will result in higher costs for telecom operators as they will have to pay more for additional network capacity.
Sibal said in the same interview that the government wanted to ensure that all the operators get maximum spectrum but up to a certain limit only. According to him no single player should be able to dominate the market.
The minister also said that lots of spectrum will be available for use if the number of players in the telecom market goes down, possible through mergers and acquisitions.
A similar view was express by Bharti Airtel chairman Sunil Mittal last year at the World Economic Forum in Davos. He said that with decreasing profitability, the number of operators will go down in the future.
“Consolidation is a natural phenomenon. Bloodbath have started to happen. There is enough of it now. Marketcaps have come to a half. Companies are making losses after so long. There will be only few players six, seven but certainly not twelve. Its (consolidation) is inevitable,” he told an Indian business news channel.
Even the Norwegian company Telenor had said in the past that the Indian telecom sector will likely witness consolidation by 2012.
“The consolidation could happen in some years’ time, maybe in the next two years, when (mobile) penetration will reach 70 to 80 per cent,” Telenor President & CEO Jon Fredrik Baksaas was quoted as saying.
The draft NTP-2011 has already proposed some measures which will affect the incomes of all the telecom operators.
The abolition of roaming charges, which constitute around 4 to 7% of the telcos’ revenues, is expected to reduce the revenues of some leading telecom operators by around $400 million.
