Telecom is no IT/BPO or Retail Business – Look before you leap

This article should have been posted long time ago, sorry for the procrastination. India already has close to 250 million wireless subscribers. At a growth rate of mere 26% YoY by 2010 we will have 500 million subscribers. I really fail to understand the entry of new Telecom operators – Unitech Ltd, Videocon backed Datacom Ltd, Essar group backed ShippingStop Dot Com Ltd and Shyam-JSFC Sistema. What do these operators think of Wireless Business ? Is it like Setting up an NBFC or IT/BPO company and make announcements to drive the stock prices higher ? Coincidently Videocon and Essar belong to this category. Unitech Ltd is the new kid on the block which has made couple of billions by luck is all set to burn it in few months 🙂

Existing Wireless Service providers with PAN India presence:

• Aircel [Will launch operations in remaining circles]
• Bharti Airtel Ltd
• BSNL
• Idea Cellular [Will launch operations in remaining circles]
• Reliance Communications [GSM – launch in 12 months + CDMA]
• Tata Indicom [GSM – likely to launch + CDMA]
• Vodafone India

So we already have at least 6 service providers in each circle which will go to 9 for sure. Now I really don’t understand what kind of infrastructure these new companies will build and compete with these 9 players.

Wireless is no more 2.0/2.5G voice service in few chosen circles. Reliance is already offering FREE calls between Reliance to Reliance phones anywhere in India between 23:00 to 06:00 hours [Remember those days of concessional STD rates at night?] I can scare you guys by telling you that the cost involved in deploying a PAN India wireless network with spectrum is anywhere between $12-$15 bn by cost replacement method. However, even if the new incumbents were ready to fully leverage on sharing passive infrastructure they have to invest tremendous capital in running the operations.

By the time these new incumbents are ready to deploy services, Voice rates would have hit between Rs 0.25 – Rs 0.50. On Dec-27th-2005, I had anticipated a Fruit seller will offer FREE Talk Time deal. I am sure this Dec-28th, on the birth anniversary of Dhirubhai Ambani, RCom which is on a GSM Jihad will help the fruit seller’s dream come true 🙂 Does Essar, Videocon and Unitech have such deep pockets to bleed and continue ? Forget it!!!

For instance, a brave new soul may end up surviving the battle and make me eat my post [I will print and eat this article and post a video if any new incumbent will make it to the Top-5 by 2010] The 3G spectrum auction will dig holes worth Billions of Dollars [Only if Telcos have or someone is willing to lend ;-)] Former, VSNL Chairman Amitabh Kumar in a comment on 3G on this blog, is positive about the auction later this year.

Establishing service is full of hurdles unless you are there for charity. Being an integrated telecom player offering entire bouquet of services is a must to sustain and grow. Adding to new incumbent woes is, TRAI and DoT recommendations don’t allow operators to sell out for few years and hence I believe 9 operators / circle is a sufficient number to encourage and preserve competition or allow lenient mergers and acquisitions for consolidation. Time is ripe for letting MVNOs and disruptive technology players such as VaVasi Telegance or someone on Mobile Wimax 🙂

Tags:Telecom, Wireless, 3G India, Mobile India