The Cellular Operators’ Association of India (COAI), the powerful lobby of traditional GSM operators such as Airtel, Vodafone and Idea, has expressed concern over the decreasing profitability of telecom operators in India.
Over the last two years, due to the entry of new players, big traditional operators such as Bharti and Vodafone have either seen a dip in the rate at which their profits used to grow, or in the proportion of their revenues that they could keep as profits.
They have also been forced to cut their call-rates, by around 35%, over the last two years to prevent their customers from moving to the new operators who sometimes offer call rates that are nearly half of what the traditional ones do.
As a result, COAI pointed out, both profits and revenues are either stagnant or declining, especially for the big operators.
“While operators reported an overall growth in subscriber base by 43% between 2008-09 to 2009-10, the industry grew revenues only by 5% for the same period, much less than inflation rate of 8.72% for the same period,” it said.
Most of the new operators, on the other hand, have never hit profits at all, and are in the ‘investment’ stage.
The appeal is seen as yet another instance of the high-stakes wrangling going on between the ‘traditional’ operators and the new ones. It has come at a time when the government is in the process of figuring out whether or not to cancel the licenses of many new operators for failing to start their services in some areas.
The COAI, quoting the consulting firm PriceWaterhouse Coopers, seemed to imply that there are too many operators in India.
It pointed out that the new ones “have less than 5% of market share (of subscribers) and clock only 2% of industry revenues. Most new entrants have launched services in less than 60% of the circles licensed to them. Average Revenue Per User (ARPU) for new players is one-third that of the leading four players and half the size of mid-sized players,” a statement by the organization said.
The Telecom Regulator TRAI had recently written to the Department of Telecom (DoT) urging it to cancel the licenses of scores of new operator licensees and assign the spectrum to existing players.
The COAI too highlighted the need to “rectify the structural imbalances” in the sector “through proactive actions” by the government.
“..the current ecosystem necessitates government intervention in order to meet the critical objectives of accessibility, affordability and sustainability laid out in the National Telecom Policy. There is a need to relook and redesign policies bringing them in alignment with the national objectives for this critical sector,” it said.
Due to the entry of new operators, call rates have fallen from around 76 paise in early 2009 to less than 49 paise per minute at present. As a result, operators like Bharti and Vodafone, who used to get around Rs 360 per month from each of their subscribers six years ago, have to now make do with just around Rs 100 per month.
They have tried to increase their profits by increasing call rates, but are wary of consumers switching to cheaper networks if they use the strategy extensively.
COAI warned that if profits for the established players continue to decline, investment too would not come.
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