When the head of India’s largest telco warned that operators may not be able to stay in the ring for long, he was voicing a view held by many, especially after a quarter of dismal results.
“We believe the price situation is a short-term one because new operators and present loss-making operators may not be able to continue with these kinds of low prices,” Bharti Airtel CEO Manoj Kohli told reporters on the sidelines of the World Economic Forum in Delhi.
Cut-throat competition as new players struggle to grab market share has resulted in tariffs as low as 1 paise per second (about US 1 cent a minute) in recent months. Last month, Bharti also introduced per-second billing after announcing that its quarterly profits had slowed for the ninth quarter.
The telecom ministry’s move in January 2008 to sell spectrum to new players in the sector increased the number of operators in an already crowded market, point out industry analysts. Before the sale, there were about six players in most of the country’s 22 telecom circles. Now that number has increased to close to 10, which is untenable even for the vast Indian market.
The operators’ view is that consolidation is inevitable. “The current tariff structure is likely to put pressure on revenue and profitability in the short term. Consolidation is likely to happen in the next 12-18 months,” UBS analysts said in a note Wednesday on the takeaways from the bank’s India CEO/CFO Forum held in the first week of November.
“New operators have no business case as they cannot match incumbent scale with their limited quantity and quality of spectrum. [The] 3G auction is likely to happen by March 2010 and will segregate long-term players from newer operators,” said the note.