The country?s telecom growth story, which so far looked insulated from global slowdown, may now get marred by what analysts have identified as emerging risk factors. The biggest risk factor identified for the sector is regulatory, followed by the ability of companies to arrange funds to expand, their unpreparedness to face churn of subscribers and a fair regime for infrastructure sharing.
According to Ashish Iyer, partner and director, Boston Consulting Group, the regulatory environment poses the greatest risk to the telecom companies as there is no clarity on what might hit them next.
Prashant Singhal, telecom industry leader, Ernst & Young, told FE, ?The biggest risk for telecom companies in India is the regulatory environment. The companies don?t know what the regulatory path would be for the next two to three years?.
The regulatory risk factor basically underlines the lack of a regulatory road map for next three to five years. Analysts said the regulations on key aspects governing the sector kept changing from time to time. ?When companies enter India, there is set of regulation governing them. Within few months or years they can get stumped by regulation, which had they known earlier they would never have entered the country,? said an analyst.
The most recent instance, which can be cited, is the recent proposal to bar the promoters? of telecom firms that got licences last year to sell their equity. The proposal was mulled only after the companies had got licences and spectrum to start services, some even tied up with foreign players. And the most ironical case would be of some existing operators who are expanding coverage areas, if the proposal is implemented from a retrospective date.
According to Singhal, for the telecom companies that are in expansion mode, arranging funds could pose a major risk factor in the current market conditions.
Telecom firms unpreparedness to face subscriber churn could be a major risk factor, Iyer told FE.
Churn means companies are losing subscribers to rival firms either on account of better offers or lack of quality service. By the second quarter of the current financial year, it is expected that mobile number portability (MNP) would be implemented in the four metros, followed by the rest of the country. The advent of MNP would only accelerate churn ?but are the companies prepared for it?,? asks Iyer.
In the last few months, the country has been adding more than 10 million subscribers every month but Iyer said major net additions were happening through churn. With players, who were limited to certain circles, expanding to newer ones to carve a pan-India footprint and some starting to offer both CDMA and GSM technology, leading to newer offerings and subsequent churns.
A fair regime for infrastructure sharing is also seen as a major risk factor. With almost all companies hiving off their passive infrastructure into separate entities and mobile service providers sharing such infrastructure could lead to risks as there is no fair terms and conditions governing such sharing.
Although a strong growth is happening in terms of subscriber addition what remains to be seen whether network expansion keeps pace with it. The case of state-owned BSNL is well known wherein it suffered because of capacity constraints with network capacity expansion not keeping pace with subscriber addition.