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Information technology companies might get networking outsoucing deals from telecom companies for a total value of $500-600 million in the next three to four years. This increase in business from telcos comes after a lull of two years of slow business, as the government is currently auctioning 1800 megahertz spectrum as part of second generation airwaves.
The current auction is giving away the 1800 Mhz spectrum which will replace the 900 Mhz legacy spectrum that many operators have had for many years. The 900 Mhz spectrum is being auctioned only in three circles. As more operators make the shift, it would lead to more network infrastructure being set up. “It would lead to a significant upside for IT services companies like us. The volume of towers that 1800 Mhz requires, is more than 900 Mhz. They will invest more,” said Jagadish Mitra, head of mobility at Tech Mahindra.
Mitra also said that the 900 Mhz that the operators currently has its own challenges, where they could see more invesments coming from. The eight operators which are particpating in the auction, except Reliance Jio, are mostly bidding for the spectrum as their licences are coming up for cancellation. However, the shift in the nature of spectrum will lead to incremental fresh investment. The last time spectrum was allocated in 2008, as seven new players entered the fray, which led to over $1 billion in outsourcing deals to the IT sector.
This time around, with only one new player in the fray, it would be lower, said Pradeep Udhas, IT leader at KPMG Advisory. “The economic model has changed since 2008. The tariffs charged have come down and so have average revenue per user (ARPU). But there are factors leading to more investment in network infrastructure like increase in usage of data services,” he said.
As data revenues, especially from 3G have picked up, operators are expanding coverage across towns and cities. Added to that, many of them are changing their mode of offerings, allowing IT companies to sell more applications and solutions. “Operators are realising that value-added services (VAS) based model is not working out. So, they are also tailoring their data offerings differently across markets, which will give us an opportunity to provide more solutions to them,” said Mitra.
Telecom operators are also actively looking at enterprise market with their integreated data offerings, giving yet another play for IT companies from telecom operatos. “We can sell more data analytics and network-enabled services on digital enablement,” said Mitra. Technology spending by telecom operators has been low for the last two years as most of them were mired in margin crunch after 2009 tariff war. In the last nine months however the sector has been showing recovery in revenues per minute (RPM) and ARPU as 122 licences were cancelled by the Supreme Court in early 2012, reducing the competitive intensity. The top three telecom players—Bharti Airtel, Vodafone and Idea Cellular have been ganing revenue market share.
“The top telecom companies will now go in for more network investments as they would want to consolidate their position,” said Alok Shende, principal analyst and co-founder of Ascentius Consulting.
