Risk Of Telecom Industry

Indian telecom industry is still in growth phase and slowly maturing. US saw major consolidation in the telecom sector in the last 2 decades. The market there is mostly saturated now. Not the same case with India. It still is exciting with a lot of things like 3G and WiMax coming up. At the same time the expansion is fraught with risks. Ernst & Young has put together an excellent report and summary of risks for global telecom sector in 2009. Hindu Business Line has given the top 10 risks. Here is my analysis of the 10 risks with examples : 1. Regulation and compliance : The regulatory authority in India has delayed the 3G

auction and sets up new guidelines every now and then. It has also given 3G license for BSNL without giving it to other providers. Airtel and Vodafone which has launched iPhone 3G phone were left in the dark with 3G phones without any 3G service. 2. Entry of 4-5 players : Licenses were granted to 6 new players. Unitech, Sistema, etc..

Sitema has started its operations under the name of MTS by providing 1 million minutes free. New players and offers like these would seriously dent the expansion plans of established players. All the players should think out of the box and come up with IDEAS. Next thing would be consolidation in the industry which is already happening in the telecom tower business. 3. Capital for expansion : This is the biggest criteria for smaller players. While there are

no smaller players, as the new players are backed up by some heavy-weights, expansion is still tough. This is where sharing infrastructure comes into picture. Indus Towers is one such example. BSNL has recently announced about leasing its towers. Initiatives like these will help both the older and newer players to penetrate into new markets. 4. Attracting and managing talent and intellectual capital : This is a tough one. With

fierce competition comes the talent poaching. Companies should have some talent retention measures in place. Airtel has restructured its business into 9 verticals to retain talent. Not every company can do the same but, that is one option. 5. Management of strategic partnerships : Providing free SMS’s or call rates at 40 paise

per minute are no longer the differentiators. It is the value Added services which matter. There were bunch of partnerships which happened in the last 2 months. AskLaila-Airtel partnership for local search, AmarChitraKatha - Vodafone, IDEA and Bharat Matrimony have tied up for VAS. BSNL has recently tied up with Hungama portal for music and game downloads. Strategic partnerships like these should be nurtured and maintained. 6. Inappropriate processes and systems to support exponential business growth

experienced over past 4-5 years : This is where investing in IT and the right tools is crucial. These are the operations that should be outsourcing so that the telecom companies can focus on their core areas. Indian telecom companies should outsource aggressively and focus on expanding their network and services. 7. Forecasting returns from technology and infrastructure investments 8. Privacy and security risks

9. Contain and reduce costs

10. Manage consolidation and mergers & acquisition : This would tie back to point #2 of

entry of new players and a possible consolidation in the telecom business and the tower business. Few of the risks given for India are different from global risks. For example, E&Y report has Losing ownership of the client as the number one risk. It does not feature as a risk for Indian telecom. Reason is - India is still in the growth phase and losing a customer is not yet on the minds of the service providers. Number portability which is on the radar might just give a push the risk of losing customers into the top 10. I would place Number Portability in the top 7 risk. It might take a year but a risk nevertheless. Other 3 risks mentioned in the report : 1. Corporate social responsibility and sustainability : With the Satyam scam jolting India

Inc, this would be high on the radar for the companies. 2. Lack of protection for digital intellectual property : This could be next for Indian

telecom. Too soon but might take 2-3 years for this to become a risk 3. Concentration of equipment manufacturers : Sourcing from a single supplier or a

bunch of supplier could lead to great dependency. Satyam scam has just shown the world how dependent one can become on the outsourcing services. Same case will be applicable to the telecom companies. For example, Reliance sources most of its equipment from ZTE - a Chinese company. This is a potential risk. Indian telecom sector is all set for the second revolution. With the major cities already saturated and having a tele-density in excess of 80%, it is the tier 2 and rural areas which will provide the next big leap. 32% is the overall tele-density of India. A wide gap and even bigger opportunity for the telecom providers. Only if they can manage these risks.