Technology is fine, but ultimately, every industry is defined by revenue and profitability. And here, the figures are painful, to say the least. The Indian telecom industry is currently facing a challenging financial environment.
At the vendor front, January-September 2016 financial results show that compared to the same period last year (Jan-Sept 2015), revenue has declined, as have operating profits. Two balance sheets are available for 2016, Ericsson India and Nokia (Global). In Ericsson India's case, a
25 percent drop in sales is observed and in Nokia's case, net sales-non IFRS had decreased by 9 percent and operating profit by 23 percent.
The vendors are optimistic that with the spectrum auction behind, equipment procurement will now commence. The four leading service providers, Bharti Airtel, Vodafone India, Idea Cellular, and Reliance Jio, the main buyers of spectrum are planning their respective network rollouts and expansion. Consolidation among the carriers has slowed the procurement process, as inventory of the operators is being accommodated, and only then fresh purchases planned. In any case, 2016 may not see the RFPs converted to actual orders, and the contracts will start getting reflected in the 2017 balance sheets.
The service providers too are burning both ends of the candle. The telecom operators have an accumulated debt of around 3.8 lakh crore. Financial over-leveraging, largely on account of the high costs of spectrum pay-outs has exerted a downward pressure on revenues and earning capacities in the industry. Total capital expenditure (CapEx) in 2015-2016 is estimated to be between 31,000 crore
and 35,000 crore (excluding spectrum payouts), as per Analysys Mason. The top telcos' network CapEx has increased from 14-15 percent of sales revenue in 2015-16 to over 20 percent in the last quarter ended September, and is expected to remain at this level for the next couple of years. With high price-related competition and low tariffs, the ARPU is low, and this limits revenues.
With about 100 million 4G subscribers, and more on the way, data usage is expected to grow dramatically, and is expected to continue that path in the year ahead. Wi-Fi usage will continue to be key, especially as carriers look to offload more mobile traffic onto broadband networks (especially fiber) as well as considerations around other spectrum efficiency technologies. Voice over LTE (VoLTE) and Voice over Wi-Fi (VoWiFi) services will also be a key focus to help carriers rationalize networks and potentially offer improved and expanded services.
Furthermore, carriers will need to consider other network strategies to better manage coverage, quality, and capacity. Further densification of cell sites including small cells represent a viable strategy for many carriers, as do other network efficiency trends such as Software Defined Networking (SDN) and Network Function Virtualization (NFV). Operators are essentially moving away from proprietary, hardware-based network equipment to software-based network functions which should allow them to manage their networks more efficiently and effectively.
Wearables and smartphones are two related areas to continue to watch. Massive data consumption will continue to grow with the expansion of IoT and more streaming of contentespecially video. We also expect to see sponsored data services further emerge as providers look for ways to increase revenue in a market where consumers are less likely to invest in long-term ownership of content.
Location-based services, such as mobile advertising, also represent significant potential for growth. The overall trend: development of more services and capabilities that further leverage mobile devices, analytics and the mobile ecosystem to make everything more convenient and efficient for consumers, all while balancing and protecting privacy.
A big upcoming wave of change for the telecommunications sector will be the emergence of fifth generation mobile networks (5G). While the technology is still several years away from achieving mass market coverage, what it promisesmore speed, greater efficiency, and less latencywill be essential to supporting connected things in the future, especially self-driving cars. 2017 is likely see heavy momentum toward implementation of the next generation of wireless network technologies such as 5G which should move from the lab to field trials, despite mass-market rollout still being several years away.
The smartphone market will continue to be robust with continued flexibility for regular device upgrades. With more robust upgrade options, the secondhand smartphone market is expected to continue to grow. This is particularly driven by the ease of trade-ins, more transparent trade-in value, as well as the desire for owning a latest model device. The biggest potential implications are for handset vendors, who are likely to become more and more aware of the residual value of their devices as well as carriers who can get more smartphones into the hands of even more budget conscious consumers.
Lastly, is the steadily increasing momentum for mPayments. More handsets are being equipped with Near Field Communication (NFC) chips, retailers are upgrading payment systems in response to regulatory pressures and consumer demand, and businesses of all types are implementing point-of-sale technology that allows customers to pay using mobile devices. Given these trends, it is anticipated that mPayments will finally become a payment method of choice for many consumers in 2017.
Needless to say–there will be a vast array of changes that will make 2017 an exciting year for the sector.