Wednesday, October 7, 2009

Impact of per second billing to Indian Telecom Industry

My own analysis on Tata Docomo's per second billing impact on indian telecom industry detailed below:

Background: Tata Docomo launched per second billing across country and it is proving to be a hit. This resulted in rate war and RCOM followed it up with 50p billing last week. Bharti, IDEA and vodafone are yet to react to it.

What does this mean to consumers: India is filled with pre paid customers like 80:20 ration to postpaid. People are price sensitive and can easily shift loyalties.

What does this mean to Industry: ARPUs are stagnating for the past 18 months and is around Rs.230-270 range. This could crash to 140-180 range if everyone follows suit on pricing.

What does this mean to vendors: Call center handles Rs.10 per call for telecom industry. Telecom players might ask the vendors to cut the price to Rs.2 to Rs.4 and can result in movement of call centers from metros to tier II cities.

IVR usage penetration might be made more user friendly. Managed services players will feel the heat as telecom majors might ask the vendors to handle calls at as low as 6paise to 11 paise.

Fresh capital expenditure will be put on hold and can impact switch players like CISCO, Avaya and vendors like Firstsource, Onmobile.

What does this mean to Employees: 12plus year experienced people segment was majorly active in telecom, realty, engineering. This segment is expected to feel the heat and salary cuts might happen shortly.

What does this mean to investors: Avoid telecom stocks until industry stabilises. Watch only ARPU as data point and not subscriber base.

Over all industry outlook: 2010 / 2011 will witness the character test of the industry. Some 3-4 Niche players might get wiped out and strong players would emerge as winners from the first ever major challenge of indian telecom industry.