NTT DoCoMo’s decision to exit Tata Teleservices will speed up the consolidation in the telecom sector.
There are as many as 13 players in the mobile services segment, which is the largest number of telecom companies in a country.
Hemant Joshi, Partner, Deloitte Haskins & Sells said, “Consolidation had already started when the Supreme Court cancelled the 122 2G licences. The last round of auction drew the line between the serious players and those who are not. DoCoMo’s exit will further accelerate mergers & acquisition as having 8-10 players will not be viable.”
According to analysts, smaller players will find it tough to continue operating as the larger players are better positioned to leverage on their existing strengths. Indian voice telephony market has hit near saturation with 75-80 per cent penetration.
Average revenue per user is not going up significantly and the only growth is in uptake of data services.
The market is dominated by the top three players: Airtel, Vodafone and Idea who between them have 65 per cent of the revenues.
To add to this there is over competition and regulatory uncertainly.
Tata Telservices, for instance, has been losing revenue over the past two years and would need significant investment if it were to turn on the growth part again.
“Telecom is a crowded space, with no scope for recovering costs. There were certain differentials between the spectrum acquisition costs of players, but over time these will disappear, leaving all surviving players with expensive spectrum, and there is just too much competition for smaller players to attempt true cost recovery. If there are more than 5 players, the industry will not let the smallest players make money,” said an investment banker. Mohammad Chowdhury, Leader - Telecom, PwC India on DoCoMo to unload stake in Tata Teleservices, said given the growth in data, deals involving CDMA spectrum could offer advantages to operators offering mobile broadband, since the spectrum offers such good data speeds.