After the US credit rating was downgraded a few months
ago, the Eurozone is now in the midst of an economic crisis, with the UK never
really coming out of recession and Greece almost on the verge of default. In
the past few days, the rest of the world, including India have been warned that
this current economic turmoil in the Western world is likely to have
far-reaching effects on APAC as well, unlike the ‘not-to-severe in comparison’
US credit rating cut. India is already shaken up with a declining rupee. With
fears of yet another economic recession in the air, these developments will
have a telling impact on the telecom industry?
In September, three top ICT companies – Apple, Yahoo! and
HP saw their CEOs being replaced, while in India, four top telecom service providers – Bharti Airtel, Reliance Communications, Tata Teleservices and Aircel have
undergone mass restructuring, by merging their enterprise, network and wireless
teams in most cases, firing middle-level staff and shuffling top-level
management. While 4G expansion is undergoing some pressure in the US among
AT&T, Sprint and T-Mobile, in India, 3G operators were recently pulled up
by regulator TRAI for illegal 3G roaming agreements for the sharing of 3G
spectrum among 3G players in those circles where they failed to win 3G
spectrum. Undergoing severe pressure for 3G payments and rollouts and
dangerously low ARPUs, five leading operators in the country — Bharti Airtel,
Vodafone, Idea, RCom and TTSL recently raised 2G voice and data tariffs. The
latest move – that of market consolidation of sorts – with Bharti Airtel,
Vodafone
and Idea Cellular
planning to start their own tower company, in order to cut costs and share
passive infrastructure is the most surprising, as just a little over a year
ago, top telecom players were vehemently against sharing active and passive
infrastructure, fearing that this would hurt competition. The current scenario
looks like telcos also are increasingly being pushed to the edge, in an
increasingly cut-throat industry, where they are forced to make a choice
between QoS combined and low-costs versus overall profitability.
According to a survey conducted among leading IT
companies in India by HeadHonchos.com, a leading Indian job search portal for
senior management professionals, the global economic slowdown is expected to
have limited, short- term impact on hiring in the Indian IT sector. The
findings of the survey suggest that industry is today better prepared to deal
with the current slowdown as compared to 2008. Around 62.9 percent of the
respondents do not expect the global economic scenario to impact hiring plans.
While 37.1 percent of HR heads surveyed do expect to cut back on hiring, while
8.1 percent of the respondents expected the slowdown to have any long-term
impact. The survey, based on the views of senior HR Managers was undertaken to
test sentiments in the IT industry, a sector that is most sensitive among other
industries to global market movements. Some of the major trends that emerged
from the survey were that a majority of companies are expected to proceed with
their hiring plans for FY2011-12; however, the hiring outlook in North and
South India is more optimistic than in the western region.
Looking at the revenue growth perspective, which has
recently seen a slowdown of both imports and exports of telecom equipment and
outsourcing, due to the uncertainty prevailing in global economic markets in
the last four-six months, CRISIL research has declared that the second quarter
of 2011-12 will be marked by significant moderation in revenue growth and
continued pressure on margins. Based on an analysis of the aggregate financial
performance of select companies across 21 industries, CRISIL Research expects
corporate India to record year-on-year revenue growth of around 15 percent
during Q2 FY12, as compared to 19 percent in the preceding quarter and 22 percent
growth in Q2 FY11. As far as the IT services sector is concerned, CRISIL says
that dollar revenues are expected to surge by 17 percent on a y-o-y basis on
the back of a strong pipeline, with the depreciating rupee providing some
relief to margins. As far as telecom services are concerned, CRISIL estimates
that revenues are expected to rise at a modest rate of 4-5 percent q-o-q in Q2
FY12. The intensity of competition is easing and operators are hiking tariffs
in key circles, which is expected to have a favourable impact on the industry’s
ARPU.
EBITDA margins are forecast to decline by 200 bps on a y-o-y basis, but on a
sequential basis, they would remain stable.
While the Indian government is trying to encourage
indigenous telecom manufacturing, a slowdown in the global market may force
such a situation to take place sooner or force telcos to slow down their
network expansion, as foreign telecom equipment and manufactured goods may
shoot up in cost. While the BPO sector in India has already been suffering, due
to MNCs treading cautiously in terms of investment and recruiting, in the ICT
sector, outsourcing in India has been forecast to slowdown in Q2, while in the
rest of Asia it is likely to increase.
In such a scenario, research agency Gartner has predicted
that industrialized low-cost IT services will transform the IT services market.
While there are multiple ways to reduce the cost of IT
delivery, as well as to increase the value of IT, the trend towards ILCS will
become paramount for end users to trade nonessential customisation for better
and less expensive services,” said Claudio Da Rold, VP and analyst at Gartner.
Gartner predicts that despite being an embryonic market,
by 2015 industrialised services will represent more than 30 percent of the IT
services market and cloud services are expected to become a $177 billion market
by 2015, of which $77 billion is based on advertising business models.
The past few months have seen a great many M&As and
consolidations in the global IT and telecom market, like the Google-Motorola
deal. According to a recent report in the Wall Street Journal, Clayton Moran,
senior analyst, The Benchmark Company says that the consolidation trend is
likely to continue worldwide, as telecom companies look to offer data centre
services, and growth will be driven by the digitization of the economy.
Looking ahead, partnerships may be the only way to
sustain growth for ICT companies and sharing of infrastructure and services
will be paramount. Competition will still remain, but shaky bottomlines
worldwide are forcing IT and telecom leaders to rethink their growth and
marketing strategy. VAS
may no longer be the only thing pulling in revenues, as customers increasingly
look for QoS,
as seen in MNP examples throughout the world. The global economic scenario may
not have long-term impact on the telecom industry, but in the short term, ICT
companies are definitely going to be taking more steps to guarantee their
market position.
By Beryl M
editor@telecomlead.com
