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Telecom sector may be hit as recession bites
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[Image: 2009040951540301.jpg]
New Delhi, April 8 Indian telecom sector, which has so far remained untouched by the slump in the global economy, could see the growth rates slowing down by the end of the year. Thanks to households postponing spending, the growth rate of mobile handsets could fall by as much as 50 per cent and also see a decline in new subscriber additions compared with 10 million new subscribers a month at present.

According to Mr Prashant Singhal, telecom industry leader at Ernst & Young, the handset sales growth in 2009 is expected to be in the region of 13-15 per cent, down from 26 per cent last year.

“Yes, the Indian telecom industry has been impacted to some extent by the current global slowdown. In the current economic environment, many corporates are re-negotiating the rates they pay to telecom operators. Though subscriber numbers are still growing at well over 10 million a month, revenues are not rising commensurately. Also, it will be a challenging market for mid- to high-end handset makers this year. In high-end phones, sales will be defined more by need rather than desire of the user.”

While most operators claim that the telecom growth story is intact for another 3-4 years, they privately admit that the liquidity crunch may have an impact in 2010. “Most of the growth in mobile usage is coming from non-urban areas driven by a large population of employed youngsters. However, if the liquidity crunch continues then these youngsters may not find employment easily, which in turn will impact their expenditure on communications services,” says a Mumbai-based multinational GSM operator.

Cost-cutting measures

Though the industry is not losing sleep yet, they are undertaking cost-cutting measures such as infrastructure sharing and internal restructuring. “Reflecting its proactive approach, Ericsson has had a cost reduction programme in place since 2008 which well exceeded set targets. The present economic condition is helping us drive better focus across the various teams and functions internally. Conscious decisions are being taken to curb costs by increasing the use of Web effectively - through webinars and Web conferences, thus seamlessly connecting across geographies and different time zones. However, we expect the telecom scenario in India to be in growth mode for the next few years,” says Mr P. Balaji, Vice-President (Marketing & Strategy), Ericsson India.

Some rule out any impact

However, some of the players completely rule out any impact on telecom.

“Look at it from the customers’ perspective — slowdown or not, they need a communication device under all circumstances; to share their thoughts, worries, good news or even for a general discussion. So, the demand for telecom services remains strong, and that is evident in the strong growth that the sector continues to enjoy. In fact, telecom usage in innovative ways is actually increasing through the long-drawn recession, as it becomes a cost-effective alternative to business expenses such as travel and lodging, etc,” says a spokesperson for Tata Teleservices.

But Mr Singhal sounds cautious. “This is a time for telecom operators to take a close look at their internal structure. In the last couple of years of sharp growth, large operators have added between 3,000 and 7,000 new employees. This is an opportunity for such operators to look to achieve a greater level of efficiency in their operations.”

Market watchers point out that the onus will be on the new government to launch next generation reforms in the telecom sector to sustain the growth story. “A large number of policy initiatives, which could have helped the industry to overcome the current economic crisis, are awaiting Government approval. There should not be any more regulatory uncertainties,” says a Delhi-based telecom player.

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