[T.S.R:11631] TELECOM-competition making life tough, even for large players

I came across this news in a leading Financial daily, and the news definitely makes sense. The news was about blow up in telecom sector, and if one looks deeply into this sector, then over a period of time it has definitely lost its sheen.

 

The competition in this sector seems to be growing exponentially with every passing day. Also the telecom regulator keeps coming up with innovative ideas to make the life of Telecom companies even worse. The market was already very competitive, and the announcement by Telecom regulator that it would explore call charges on a per-second basis has really set the competition on fire.

 

Tata was the first to launch pay per-second plan, but as it always happens, all other operators jumped in sooner or later. Bharti usually keeps its tariffs high, as the company has a huge base of corporate clientele and also because of its extensive infrastructure and better connectivity than any other, it commands a certain premium. But, recently it too had to come out with the same plan.

 

The level of competition can be judged from the fact that each telecom circle has 8-9 players. Thus the number of factors that can lower the profitability of such companies are accumulating one over the other. First of all, the number of players have increased, secondly the Average revenue per user (ARPU) is bound to come down on account of calls being charged on per-second basis.

 

Also, since switching over cost is so low these days that no one is really bound to any telecom operator except at high end level. The companies are trying to promote their valued-added services, but not many subscribe for such services as the cost of subscribing for such services is usually very high.

 

Business is one place, where one needs to keep innovating and also diversifying in order to sustain the growth and maintain the market share. Bharti's core business has been that of Telecom operation, and it has not diversified to the extent that other sources can contribute comparable revenues. It ventured into cash and carry outlet business in collaboration with Wal-Mart, but the pace of progress has been quite slow. The market cap of Bharti and other telecom operators has come down in the last 1 month. However, the lowering of valuations does not necessarily make them attractive for investment.

 

I feel that anyone contemplating buying a stake in Telecom companies should restrain from doing so, be it Bharti or any other company, as competition will lead to crumbling of many company in the near future (mostly the new entrants).

 

 

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