Monday, April 5, 2010

Telecom: Lesson for power and banking

The feat of the telecom industry would be difficult to match by any other sector in the country. The credit for this goes to the private sector and the competition unleashed by the privatisation of this industry. The post-liberalisation generation would find it difficult to believe that before this period one had to wait six months and more for a telephone landline, and if the palm of the linesman was not greased the last mile of your connection would be delayed another few months. The linesman was king. Today the consumer is king. A telephone was once considered a luxury. Even a minister had said so. But today, according to the latest figures, one in two Indians owns a phone. There are close to 600 million subscribers and almost 10 million subscribers are added every month. There is disbelief in some quarters at these figures. They feel these figures are highly inflated because sales of SIM cards are counted as customers. There is some truth in this and it is estimated that SIM-card-users could account for close to 30 per cent. Even taking this into account the achievement is still creditable. And the customers are asking for more. According to a Nokia study, the communications sector is expected to emerge as the single largest component of the country’s GDP with 15.4 per cent by 2014. Of course, there is a big divide between urban and rural teledensity figures. It is estimated that only close to 12 per cent of people in rural areas have access to a telephone. Consider the banking system, which has been around for so long. Today 61 per cent of Indians have no access to a bank account, and in the poorer regions, particularly in the Northeast, the situation is worse. In the power sector, too, the story is the same with thousands of villages in darkness despite the crores of rupees poured into this sector. Corruption in getting a power connection, particularly outside the major cities, is widespread. However, with mobile penetration the banking sector can cash in on mobile banking which is catching up. But unless it penetrates the unbanked areas, the true calling of this technological marvel will not be used to its fullest capacity. One of the reasons for this high growth in the telecom sector is the price factor, which is a result of competition. India has one of the lowest rates in the world. When the sector was first opened to telecom players they squeezed the customer, who had to pay Rs 18.40 for incoming and outgoing calls. As more and more players came in tariffs fell to Rs 9, and then Rs 4. Now it is one paisa and some are talking of half a paisa. There are umpteen value-added services and these will only increase as the telecom companies have to depend on such value-addition to increase revenues. The cost of a handsets is also melting with handsets available for Rs 1,000 compared to the Rs 20,000 that a simple handset used to cost. The challenges posed by the price war and competition are leading many companies to go global where there are opportunities and virgin territories to conquer. This one reason why Bharti Airtel and Reliance Communication were so eager to tap the African market. Bharti’s success in acquiring the African assets of the Egyptian company Zain has given it a huge market. The telecom penetration there is low and tariffs are high. Bharti, with its low-cost model, will be able to increase teledensity in territories it acquired and help change economic fortunes of those countries as it did in India.


This article was written and published on April 4, 2010 in Deccan Chronicle (Indian Newspaper on the web) .Though the author is trying to describe the aggressive steps in the telecom industry in India, however, unknown to him he was aptly capturing a parallel of what is obtainable in Nigeria, several nautical miles away.
As Bharti takes over one of the largest Telecom companies in Africa (Zain Africa),we hope and pray that it will help in ''changing the economic fortunes of Nigeria as it did in India''.

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