Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

Indian telecom industry – bracing up for phase 2

Posted by Arun Uday on June 8, 2010

For long, the Indian telecom industry has been an object of study globally for the path breaking and innovative operational & business models that they introduced to the world. While the success of the Indian telecom companies in building an industry with enviable profitablity despite operating in the world’s cheapest ARPU market has evoked wonder, we may just see the next chapter of this story unravelling in the next few years. The charts below capture exactly what has been happening to the telecom industry in India.

Subcriber growth has been robust as ever, with 18-20 mllion new subscribers every month, the highest globally…

but, these have been at ever declining ARPUs.

Competion has been brutal, with India having the highest number of operators anywhere (7-10 per circle compared to a global average of 3-5)…

resulting in a scramble for spectrum.

The end result has been falling tarrifs…

leading to a fall in gross revenues for the industry as a whole, and telecom stocks taking a pounding on the bourses.

Few other parameters make the plot even more interesting. First, if all the existing competition is not adequate, there are newcomers getting ready to enter the market. Second, the operators have paid a whopping $15 bn as fees for 3G spectrum. Third and perhaps most important, the government is working on bringing in mobile number portability (MNP). With most subscribers (me included) being thoroughly dissatisfied with the quality of calls, MNP will probably result in a huge churn in customer base, as subscribers would be free to experiment with other operators without fear of losing their existing numbers. There could not be a better conflunce of factors for a complete overhaul of an industry, and when one of the size and scale of telecom gets reconfigured, there are going to be some serious winners and losers. The real interesting subplot for PE/VC investors such as ourselves is not what will happen to the operators themselves, but all the action that is happening with the ancillary players. Remember the Acme Telepower story of the previous era, which went from nothing to a reported $3 bn valuation in a matter of 3 years by just cornering the AC shelters market. Given the heavy reliance that Indian operators place on outsourcing partners (a highlight of the aforementioned innovative operative model), we could well see a few Acmes emerging from the next phase of the telecom story as well. These will be the ones who will be successful in anticipating the problems that operators will face going forward (of which there will be many as evident from the above stats) and have effective solutions addressing them. Expect us to strive towards identifying and backing at least one such potential company going forward.

One Response to “Indian telecom industry – bracing up for phase 2”

  1. […] Link: Indian telecom industry – bracing up for phase 2 « Technology … […]

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