Devangshu Datta: IT, telecom shining

BEATING THE STREET

The flow of good news about the domestic IT and telecommunications sectors went almost unnoticed as the controversy over turnover tax and worries about a failing monsoon kept sentiment depressed. In both industries, trends looked excellent.

Telecom continued to show a pattern of lower charges and rising subscriber base "" that fits with the price-elastic characteristics of the industry.

In the last fiscal, mobile services grew over 130 per cent in terms of subscribers but only about 72 per cent in revenue terms. Whopping subscriber growth in GSM was backed by equally good growth in CDMA after the mobility policy was sorted out.

There was fair growth of around 16 per cent in fixed line subscriptions (more if one counts wireless fixed terminals as part of this market). Broadband usage, data traffic and long-distance minutes all showed strong growth in terms of minutes even as prices dropped.

Driven by cheaper costs, more and more companies upgraded and extended the use of network-based applications and enterprise-wide solutions.

By the end of this fiscal (2004-05), volumes should have risen enough for revenue growth to be visible across all segments. Obviously with overall telepenetration at only 7.3 per cent, there's room for continuous growth until the entire middle class is connected.

Charges are likely to stabilise across PSTN and mobile markets though there will be further drops in broadband rates and very likely drops in LD.

As to telecom policy, the Left Front is aware that it is posturing for the sake of posturing in opposing the hike in telecom FDI limits. While the posturing is irritating, it's unlikely to halt rollouts.

What's far more important in policy terms is a rethink in the matter of spectrum allocation. Finding money to finance rollouts or mergers isn't an issue; spectrum availability is.

The domestic IT industry hit what seems an important inflexion point last year. For the first time in over a decade, domestic IT growth equalled IT export growth in percentage terms at around 24 per cent in each market. What's more, the growth was distributed across segments, although unevenly.

The current fiscal should see a continuation of growth in both domestic and external IT markets. Increasing telecom penetration and lower broadband rates as well as lower hardware prices should drive growth in the local IT market while exports ought to pick up if the US economy does recover.

Indian IT revenues crossed the $20 billion mark in the last fiscal. The big six of TCS, Infosys, Wipro, Satyam, HCL and Patni continued to dominate the industry (if one excludes US-based companies like Cognizant). The top 20 companies accounted for around two-thirds of total revenues.

On the export front, anti-BPO laws might cut back projections and it's not absolutely clear that the US is in recovery mode. The main roadblock to growth in the domestic IT industry could be a cooling-off in political enthusiasm.

The two most IT-friendly chief ministers lost in the last elections; their successors could cut budgetary allocations and other states might also pull back on respective e-governance programmes. Still, private enterprise might pick up much of the slack.