Surfing the pandemic tide in the Indian telecom sector
The year 2020 has arguably been the most disruptive year in modern era. Global economies have witnessed unprecedented slump in demand of core services. ADB has recently predicted that Indian economy will contract by almost 9 percent in the 2021 fiscal. This will be the first time since 1979 that the Indian economy will witness a negative GDP growth. A worrying fact for almost every sector.
Telecommunication, on the other hand has witnessed a strong surge in subscriber growth in the first quarter, with almost all key financial matrices demonstrating bullish trends when compared to the previous period. Presently, major credit rating agencies around the globe, peg more than 75 percent of the operators to either have a stable or positive rating outlook in near term. The market seems to be betting big on telecom globally. Does this mean that the woes of telecom operators in India are over? Is the worst behind them? Let us have a closer look at what the future of Indian telecommunications sector beholds.
Demand at all-time high – Gush of wind for a stalled kite
The pandemic has resulted in a very strong demand for data services, triggered by remote working, boom in edutech and healthtech sectors and an increased penetration and viewership on OTT platforms. The government’s push for digitizing essential services in sectors like education, healthcare and financial services through the Digital India program has also got a large push, albeit through the not so desirable circumstances. Data volumes for all major Indian telcos grew at more than 10 percent in the first quarter. This sudden surge in demand has had a positive impact on the ailing FLL (fixed landline) revenue stream, with the FLL connections in India showing a positive growth for the first time in June 2020 over the past decade.
Average data usage in India now stands at 11 GB per wireless user per month, with the country being one of the top consumers of data services globally. Going by the current trend, it seems that the usage of data services will continue to demonstrate an upward trend in the near term. To service this increased demand, telcos need to continue investing in infrastructure to drive 4G penetration while also building capabilities for 5G adoption, to provide seamless services to Indian consumers.
The government has also been pushing for digital connectivity and strengthening the infrastructure behind it. National Broadband Mission seeks to increase the present route length of 22 lakh kilometer of the optical fiber cable (OFC) to 50 lakh kilometer by 2022, to cater to the predicted demand. The pandemic and resultant surge in demand seems to have further bolstered the need of increased connectivity.
The new mantra is quality over quantity for Indian consumer
India is a young nation, with around 41 percent of population between ages 10 and 35. The individuals in this age group are heavy smartphone users. With connectivity now serving as a bedrock for essential services, whether in case of remote working, online education, surge in online shopping, entertainment and gaming, urban users are now driven by quality of service and speed of connectivity, rather than pricing. Increasing adoption of broadband and fiber connections in urban areas further fuels the need for higher speeds and seamless connectivity for premium/ urban users.
Digitizing customer touchpoints
An accelerated shift to digital operating models is now definitely an opportunity. Telcos are driving initiatives to digitize various customer touchpoints starting from sales, customer service, and payments and so on. Recently, an operator launched the first of its kind WhatsApp based AI powered virtual assistant, to enable customers in getting information about their bill plan, make payments, raise complaints etc. Telcos are increasingly shifting the customer interactions away from the physical domains of shops into the digital and online domain. Digitizing customer interactions have allowed the telcos to increase their customer interactions by almost two to three times.
Telcos have built a strong network on field in last decade and a half. With increasing adoption of digital services, a majority of these resources may end up being under-utilized. For instance, telecom stores of the future may look a lot different than those of today. While BOTS may be able to provide basic information and services to customers, human resources could very well be utilized to push allied services and products. With increasing digital interactions with the customers, telcos are presented with a unique opportunity to leverage the existing resources and infrastructure to explore alternate services that could potentially translate to newer revenue streams.
The Plan C
Year 2020 has witnessed massive migration to Tier B and Tier C towns, triggered by students and white collared workforce. With shift in population density, we may also witness a similar trend in shifting of tele density as well. For instance, the circles of Kerala, West Bengal, Gujarat, Assam, Himachal Pradesh, U.P.(E), and Maharashtra witnessed net additions of wireless subscribers in month of June, against the overall negative growth rate of 0.28 percent for the same month through the country.
Telcos need to contemplate expanding product portfolios, introduction of newer tariff plans and services in some of the Tier B and Tier C towns, in order to tap into this emerging opportunity, with an overall objective to reduce customer churn and drive customer acquisition efforts.
Explore alternative digital revenue streams leveraging existing infrastructure to drive ARPU and increase traffic
Telcos continue to drive alliances with OTT content providers to lure customers into their ecosystem and also push existing customers to upgrade to higher tariff plans. While increased call volumes and data consumption did contribute to increasing ARPU, tariff plans with bundled OTT apps have witnessed a sudden surge. According to recent studies, the screen time of an average adult in India has increased to 26 hours per week in September 2020, an increase of 13 percent over the 23 hours of average screen time per week, during pre-COVID times. With increased screen times, and consumption of content, telcos are looking to capitalize on this unique opportunity to drive customer acquisition and revenues by forging alliances with some of the popular content apps. Telcos today, are eyeing a higher share of household telecom wallet by bundling third party services and integrated offerings combining two or more of the wireless, DTH, broadband and fixed line services.
Bolstering passive infrastructure
Increase in demand for fixed line home broadband and corporate and enterprise solutions will also drive need of supporting passive infrastructure for telcos to provide seamless connectivity to new customers. We could see increased allocation of funds toward infrastructure to drive quality of services. A large telco recently reported an improvement in CapEx capacity utilization by 42 percent when compared to the 2019 levels. A significant portion of the CapEx spend could also be diverted to residential clusters to enhance capacity contrary to focus on large commercial hubs.
Never has the role of telcos in global economy been more pivotal than today’s times. As the global economies struggle to stay afloat, telcos hold the key to seamless connectivity thus enabling users to settle into what everybody is referring to as the new normal.
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