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40% revenue plunge at India telcos show transformation is not always nice

Digital Transformation

India has proved to be one of the tougher markets for telcos over the last few months, and the misery is set to continue according to a report from Crisil Research.

The twists and turns experienced by the sector have had two very contradictory outcomes. Consumers are living the dream, while the telcos are getting toasted. The introduction of Reliance Jio was laughed off by some in the early months, but the impact has been profound with few smiles remaining.

The estimates from Crisil Research are very doom and gloom. With the quarterly results just around the corner, the team anticipate a 40% year-on-year decline in total revenues across the sector, owing to heightened competition. With Jio’s promotions offering rock-bottom prices for data consumption, the incumbents have no choice but to compete, carving away huge chunks of the profits in the process.

Of course, few consumers will be complaining in the short-term. The Department of Telecom boasted in September, data tariffs were down 93% from Rs (India Rupee) 33 per GB in 2014 to Rs 21 per GB last year, which has prompted increased appetites. Nokia’s most recent MBiT Index (released in February) claims data consumption increased by 144% over 2017, with the more accessible connected economy prompting several different aspects of the community.

This is the good news aspect of Jio’s entry. Forcing prices down has made the internet more accessible. To satisfy the increasingly demanding consumer, 4G network rollouts has been more aggressive, which has in turn encouraged the sales of 4G compatible devices. When you combine all these factors, new areas of the ecosystem are beginning to emerge, such as a locally relevant content segment. Back to Nokia’s MBiT Index, video contributed to 65-75% share of mobile data traffic.

However, there is usually a cost for joy, and the telcos have been feeling the burden of accessibility. 4G network rollouts are expensive and the introduction of VoLTE has eaten away at a traditional cash cow for the telco space, while the Indian government seemed to favour Jio in cutting interconnect usage charges (IUC) from 14 paisa/min to 6 paisa/min. Perhaps the charges were too high, but this move certainly benefited Jio and very few others.

Some people might have little sympathy for huge corporations making less money, but there is always a human cost of change. Market consolidation is continuing and as the largest merger, Vodafone and Idea, gets closer to the finish line these consequences are beginning to surface. Although only rumours at this stage, The Economic Times has reported job losses in the region of 5,000. Some of these redundancies will be down to the traditional fallout of mergers, job overlaps in HR or procurement for example, but sources also believe those identified in the bottom quartile in appraisal season will be shown the door. The pressure on the telcos is starting to mount.

India was perhaps a country which needed to go throw its own digital reformation. For all the promise which had been spoken about over the last five years (how often do you hear the acronym BRICs nowadays), the Indian digital economy never seemed to take hold until the emergence of Jio. A catalyst was needed, but transformation is never without pain or casualties.

One area which the Indian government will have to keep an eye on is market consolidation. A change to the status quo is welcomed every now and then, but should revenues continue to head this direction the number of telcos heading to the fire escape will also continue. Too much consolidation and you completely remove the idea of competition, and that is never a healthy position to be in.

Change is mostly good, but some might question whether the radical pace of change in India will be a positive in the long-run. Jio seems intent on killing off all competition, and the Indian government seems perfectly happy to sit and watch for the moment.

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