It is worth pointing out that it is telecom that catapulted Mr Singh into the big league. Before telecom, he was only known as the youngest brother of Parvinder Singh of Ranbaxy. Upon his return from studies abroad in 1982, Mr Singh was put in charge of a project to make a raw material used by Ranbaxy. Support from the family was minimal. And, in 1991, two years after the separation among the brothers, Ranbaxy pulled the plug on Mr Singh and stopped buying from him. He was in the soup.
After trying his hand at various other businesses, he tied up with Motorola for radio paging. This was a service business, Mr Singh realised soon, and he had tied up with a hardware company! But this partnership revealed to him the possibilities in telecom. When the government opened up mobile telephony for the private sector, Mr Singh, along with Hutch, bagged the lucrative Mumbai circle. In 1998, Mr Singh sold nine-tenths of his stake to Hutch for Rs 549 crore. This provided the capital for his expansion into health care, insurance and hospitality. Now, the Press Trust of India reports, Mr Singh will have nothing to do with telecom.
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Not just Mr Singh, seven business groups and people have made serious money by joining the Vodafone bandwagon in India, Business Standard reported last month. But that doesn't count for much. A few days before Mr Singh's statement, DoCoMo of Japan announced that it was leaving India - at a sizeable loss. It had bought 26.5 per cent in Tata Teleservices in 2009 for $2.75 billion; it has now decided to sell its shares to the Indian partner, Tata Sons, for half that value. In fact, Tata Sons itself is reportedly looking at options to exit the telecom sector. It is said to have initiated a merger with both Vodafone and Telenor, but nothing came out of those talks. At least one more telco is believed to be on the block.
This disenchantment with telecom has happened even though analysts can't stop gushing how the telecom sector is steadily turning around. Discounts on tariff have come down. Data usage is up. Both Bharti Airtel and Idea Cellular have reported good earnings for the quarter ended March 31. Even Tata Teleservices turned the corner and reported a small profit for the first nine months of 2013-14. The Telecom Disputes Settlement and Appellate Tribunal's verdict to allow intra-circle roaming pacts between telcos is expected to boost the 3G business, airwaves for which were acquired at a huge cost by the incumbents. The Department of Telecommunications is working on a new set of merger and acquisition guidelines that will allow sharing of spectrum. With the new guidelines in place, plus the fact that spectrum can now only be bought in auctions, government regulation of the industry will reduce. All of this augurs well for the sector. Yet, some people want no part of it.
I can see two reasons for this. One, the sector is still overcrowded: there are seven to eight telcos in operation. Quite a few are national players, while some are regional. (The country is divided into 22 telecom circles.) Nowhere in the world will you find so many service operators. It is now being felt that India can support not more than three or four telcos in each circle. That's because the country is no longer in growth mode, which would have supported newcomers. In fact, it is close to being categorised as a mature market; almost everybody with even a little bit of purchasing power has a mobile phone. This puts smaller players at a serious disadvantage. The only way they can become big is by enticing subscribers from other telcos. And for that they need to burn cash.
Two, voice calls have become a commodity (that's why tariffs are at rock bottom) and data is where the action has started to shift. As it so happens, data charges are still high in the country. In other words, a tariff war in data is imminent. Everybody knows what the tariff war (in voice) of 2009 and 2010 did to the telcos, old and new. Everybody bled. It took the incumbents several quarters to come out of the bloodbath. At least one newcomer had offered to surrender its licence (and the spectrum that came with it) because the sector had become unviable. Ultimately, the Supreme Court in February 2012 cancelled the 122 new licences, which gave the incumbents some breathing space. A similar tariff war in data is imminent. It will intensify once Mukesh Ambani's Reliance Jio enters the market. Clearly, telecom is not an easy place to be.