The Global Economic Crisis - enough has been written about this. But a Malayalam proverb says, "Naadodumbol naduve odenem". Loosely translated, it means, "When the whole village is running, make sure you run right at the centre" (talk about being concise, eh!). And so I too want to add a few words on this subject matter. However, I'd like to confine my thoughts to the telecom sector in India and the impact of the crisis on this sector.
At the outset, the general consensus among the well-read and oft-quoted persons from the industry is that the telecom sector in India will be doing really well, inspite of the crisis. It will not be affected much by it. After all, do people stop communicating with their near and dear ones just because there is an economic crisis going on? Our own minister, Mr. A Raja says, "India's telecom sector is strong enough to sustain and flourish in the current bleak economic environment". From what I understand, there are three reasons for this.
The first is that the average person's expenses on the mobile phone, telephone or internet is a very small percentage of his or her total monthly expenses, thanks to the healthy competition in the Indian market and the consequent low tariffs. Even among the corporate honchos, a ten thousand rupees expense per month is a small matter when a one million dollar bonus is at stake.
Secondly, in India where there is just above 35% tele density, there is still scope for some serious telecom growth in rural areas. The good news is that the would-be customers here are involved in industries that are far removed from the economic crisis. For instance, most of rural India is involved in agriculture and small scale industries. And the demand for these products has not and will probably not diminish in the future. Since the buying power of rural India will not be affected much, by expanding in these areas the telecom industry can still register a bullish growth.
Thirdly, even as Corporate India (and the rest of the world) is restructuring, re-strategising, and cutting costs, frequent communication becomes a necessity. Travel costs are saved by resorting to video-conferencing instead. Corporate heads discuss strategy and business matters over the telephone instead of over caviar and champagne at a weekend resort. Exaggerations aside, with the increased globalization of organizations, communications gains prominence, especially during these turbulent times.
(of course, there could be many more reasons, but my thoughts aren't refined enough as yet to think of all of them).
But is this fairy tale growth story just that - a fairy tale? I for one know on a first-hand basis that many of the top telecom players in India have frozen recruitments. When you are facing tremendous growth in future, you do want the personnel to manage that growth, wouldn't you? Either these companies have struck on some secret strategic formula that gets more out of their employees, or they are all being cautious. So, is there reason for them to be cautious?
Although the average person above spends a very small percentage of his total expenses on the mobile and internet charges, chances are that during periods of recession, he does try to minimize his expenses as much as possible. So, if he can avoid that call to that 1800 number to talk to that 'exotic' lady "waiting naked just for his call", he will. Even corporates that might have had plans to install a new PBX system for their headquarters, or to invest in a dedicated international leased line would now put a hold on such 'non-urgent' plans.
The Indian government itself, in particular the TRAI and Telecom Ministry, aren't exactly helping to boost the telecom growth. Our SAARC neighbours Bhutan, Nepal, Sri Lanka and Maldives have already commercialised 3G technology. And we are still haggling over the reservation price for the spectrum. While it is understandable that the maximum revenues for the government are derived from the auction phase of the technology implementation, care must be taken to not make the same mistakes as Western Europe did during their own introduction of 3G technology. The Indian consumer is very price conscious and any technology that comes with a heavy price tag will not be adopted. So, when an operator pays exorbitant amounts for 3G licenses, it will naturally shift the costs on to the end user, or run the risk of making losses.
This would mean that, by pricing the 3G spectrum and licenses so high, the Ministry is threatening to directly subdue the rapid growth of the telecom players here and consequently the industry itself.
Thirdly, if telecom players need to expand to rural areas, they need money. And if there is anything that is a shortage in this economic crisis, it is money and jobs. Despite RBI's efforts to increase liquidity in the market, there aren't many takers. Even the other public and private banks don't seem to share the same enthusiasm as the RBI in giving out their money. Consequently, other than the cash rich entities like Reliance and Bharti, there will not be many others with the capability to make such investments.
What I'd say is this. The government has come up with a good price for the spectrum, at around Rs. 3000 crores. I'm sure the guys who come up with these figures are more knowledgeable than me and they have their own reasons. But they could show some urgency in getting the auction phase started.
Secondly, the telecom players in the country need to look at the positives of the crisis. Land is cheap, financing is available at very low costs, infrastructure expenses are low, if not the lowest in a long time, and employment comes cheaper now. Take a little risk and get those expansion plans going. Because eventually the market will start to look up, and the one who took the risk will be the one smiling. And while you are at it, my future boss, give me a call. I'm looking for a job too.
