The industry is now composed of three sets of players: 1) Established incumbents like Bharti, Vodafone and Idea Cellular which have executed well in the past and have strong brands. Vodafone merger with Idea will solve the capacity constraints of both the players
2) Weaker players like Telenor, MTS, RCOM, BSNL, MTNL and Aircel which are exiting or are consolidating for survival. Even after consolidation, the operators ability to invest will pose a challenge
3) Reliance Jio which has defined the technological and strategic landscape.
In future, the industry will see slower investments and more consolidation. With so much supply in the market, revenue will grow with usage albeit with a lag. We expect 11 per cent revenue CAGR over the next 5 years but most of the growth will be back ended post industry consolidation. The weaker players will have to exit but their debt presents a structural problem for an exit. In this regard, the government might need to step in to improve the industry profitability to ease the exit of players and solve the structural debt issue. The government has many levers to improve the industry profitability which include reducing service tax to spectrum usage charges. All or any of these measures can improve the industry profitability significantly.
Finally, little help from regulator
The Indian telecom industry is at a critical juncture and faster improvement in profitability will be crucial for long-term health of the sector. Industry consolidation is critical but government interventions to improve industry profitability will help the sector immensely. The Indian telecom sector has immense potential for growth but realising the potential is in the hands of government and regulator.