If one has to do a comparison between the global telecommunications industry and Indian telecom market, it's quite clear that India is different from the rest of the world. For instance, Indian telecom operators are heavily dependent on wireless revenues which accounts for 79 per cent of their revenues, whereas the wireless segment in the global market stands at just 37 per cent.
As per experts, this is perhaps the reason why telecom companies in India are always in distressed condition. "Huge dependence on just one market [consumer wireless] means that even a small change in the segment can affect the telcos in a major way," says a telecom consultant. The way mobile tariffs have tanked over the past four years has severely hit the incumbent telcos. "Situation would have been much different if their reliance on wireless revenues would not be as huge," the consultant adds.
Globally and even in India, the telecom revenue pie is divided into four major segments: consumer wireless, consumer fixed broadband, enterprise and consumer fixed voice. While globally, the share of consumer fixed broadband and enterprise is over 50 per cent - 54 per cent to be precise - the comparable figure in India is mere 20 per cent, and which is where the problems of telcos, particularly incumbents, lay. A bunch of taxes, levies and licence fees further adds burden to the skewed revenue sources of the telcos.
But the Indian telecom market is reaching a tipping point, thanks to the circumstances, where this distorted revenue pie can be corrected. How? A recent report by JM Financial says that the fixed broadband market is highly fragmented and has a low penetration of just 7 per cent as compared to 55 per cent in China and 70-80 per cent in developed markets.
Nearly 41 per cent of the sector revenues are generated by small internet service providers (ISPs) and cable operators, and the share of organised players like BSNL/MTNL, Bharti Airtel and Reliance Jio is 59 per cent.
"The [fixed broadband] penetration could go up significantly driven by remote working and development of a dispersed workforce strategy, reduction in the price of smart TVs, bundling of live TV and OTT [over-the-top] by DTH and cable TV providers and possible reduction in differential with wireless, given the impending wireless tariff hikes. We believe the recently reduced fixed broadband tariff of Jio and Bharti could be to increase the market size for FTTH [fiber to the home] and also consolidate the market," says the report.
In August, JioFiber introduced new plans for its fixed broadband service with plans starting from Rs 399 per month. Airtel retaliated by launching Xstream Fiber plans starting from Rs 499. These pans are essentially targeted at first-time users who were reluctant to use these services due to high pricing. Though the uptake would still be slower (due to fiberisation challenges), given the rising demand from professionals working remotely, the telcos can ramp up their fixed broadband revenues.
"Similarly, the recent green shoots in ed-tech space, with coaching centres and classes going online, could drive customer preference for FTTH and allow the operators to seed FTTH in smaller cities and towns. These users can then be upgraded in the future since fixed broadband subscribers are sticky and witnesses minimal churn," the JM Financial report says.
The other big opportunity for telcos is in the enterprise segment where the pandemic can act as a catalyst to drive growth in this segment for the telcos. How? Enterprises are increasingly using digital tech for the business continuity and to grow their presence in the online channels. Telcos too have carved out separate divisions to cater to this segment. Airtel, for instance, is busy building digital assets over the past three years in cyber-security services, managed networks, internet of things (IoT) and cloud services.
In the June quarter earnings call, Airtel CEO & MD (India and South Asia) Gopal Vittal had said that enterprises are one of the most exciting businesses for Airtel. "I think the opportunity in the enterprise space is limited by, quite frankly, our own imagination, and I think that is in two parts. One is in the connectivity space where we still have a big opportunity to reach out and connect many more businesses... There is also a big opportunity to connect and wire up more businesses in the small and medium enterprise space," Vittal had said.
In fact, the JM Financial report says that the micro, small and medium enterprises (MSMEs) could drive the next leg of growth for enterprise telecom providers. According to them, there are about 63 million MSMEs in India, and the largest B2B (business-to-business) telco in the country - Airtel Business - is catering to just 1 million MSME clients, which opens up big growth opportunities for everyone.
"With the introduction of 5G, the opportunities in the enterprise segment would grow further," says the consultant quoted above.