Telecom Industry May As Well Put Money In A Bank And Play Golf: Sunil MittalĀ
Something has got to give for the telecom industry globally as it faces its biggest challenge yet in growing revenue and returns for its stakeholders, Bharti Enterprise Ltd. Chairman Sunil Bharti Mittal said on Wednesday at the World Mobile Congress underway in Barcelona.
You may as well put the money in the bank and get a decent return and go out and play golf, rather than spend $200 billion of hard capital expenditure you do.Sunil Bharti Mittal, Chairman, Bharti Enterprises
Mittal warned that the first signs of a decline are on the horizon ā the industry has started to taper off in terms of revenue, he said. The telecom industry contributed 4.4 percent to global gross domestic product (GDP) and employed 2.9 crore people in 2016. It will come under threat as worldwide mobile phone penetration nears saturation in the next 2-3 years.
Global mobile revenue in 2016 stood at $1,052 billion, growing at 3 percent over the previous year. Low single-digit subscriber growth and stagnant data-user growth of 18 percent is a cause for concern, Mittal said in his presentation.
Revenue growth has fallen to 3 percent, it's an unsustainable level for an industry which is very capital-intensive. My industry and many of you present here spend nearly $200 billion in hard capex every year. This industry has spent over $2.25 trillion in just capex, and I am not including the spectrum for which we pay tens of billions of dollars and collectively running into hundreds of billion of dollars year after year.Sunil Bharti Mittal, Chairman, Bharti Enterprises
Also Read: Bharti Airtel's First Ever Fall In Revenue
Mobile applications and platforms are attracting investments and valuations. And this has started reflecting in the market capitalisation of telecom companies.
āIndustry market-cap and returns have started to become worrisome. Most of the industry's wealth is shifting to beyond this particular industry. We are tapering off at $2 trillion in market-cap and its more or less static there,ā Mittal said.
Saturating mobile density in developed markets and hyper-competition in developing and emerging markets have contracted operating margins and shrunk the revenue for telecom companies.
The return on capital employed is fast coming down. The ROCE was at 12 percent in 2015, but is aided and supported by some fantastic returns that you get in developed markets, although there also you are seeing the stress. But if you go back into countries like India, we are looking at low single-digits return on capital employed.Sunil Bharti Mittal, Chairman, Bharti Enterprises
Mittal had four key messages for the global telecom industry, governments and regulators:
War On Roaming
The telecom industry's reputation index is struggling, Mittal said. It is trending just above the tobacco industry as customers curtail use of mobile and data while roaming.
Bharti Airtel Ltd. recently scrapped domestic roaming charges for all its voice and data customers across its network. The company made incoming calls and text messages free, and said no premium will be charged on outgoing calls, and additional data charges will be dropped on national roaming, starting April 1, 2017. It also said if a data pack is activated in the home circle, it will be activated while roaming too.
Network Companies Or NetCos
Mittal suggested the establishment of 'netcos' or network operating companies that could be operated by a third party, independent of the telecom companies. Mittal said all the spectrum should be pooled into that independent netco.
Allow Consolidation
Regulators should encourage consolidation to ensure that industry puts capital at work efficiently, Mittal said.
The governments have got it wrong for too long. Regulators always felt that giving out new licences means new money for the government and more competition for the customers. That's far from reality,Sunil Bharti Mittal, Chairman, Bharti Enterprises
Bharti recently acquired Telenor India for an undisclosed amount. The acquisition allowed Bharti access to additional spectrum and customers in seven circles. Mittal expects further consolidation in the Indian market, which he feels will eventually have four private players.
Burden Of Tax
The hand of the exchequer is very heavy on the industry, MIttal said. āExpensive spectrum, Universal Service Fund, taxes, duties...all these together put load on industry between 30-45 percent in taxes depending on which part of the world one is present,ā he added.
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