Something about stocks related to telecom sector in India at this point of time...
I've not tried to list the facts in here, I could not find much time to compose all the references to readings and articles I've read which made me compile this. This is more like a work sheet for me, just scribble my thoughts. I hope to make these more structured writing, more like an article published on a website or something, giving references when needed and more organized. Its again on one of those items on my wiss list, which always keeps growing and never got done... sad, but true...
I've tried to dwell on the over all picture. I dont expect you to ask me to justify my opinions based on facts/stats, which I can. At the same time, I can argue completely against the writing here based on facts/stats as well. Which is what I see in financial expert's opinion and views, news channels and websites. Thats why you have so many different varying opinions all well supported by graphs and stats.
You have to trust your instincts and make honest effort possible to make the best decision possible.
Nobody will ever tell us what is going to happen...
Indian Telecom Sector
Crowded
Too many players grabbing up the seemingly ever increasing subscriber base. Eyeing the huge subscriber base, the telecome sector seems to be getting crowded with too many service providers.
Stiff pricing competetionTo attract the subscribers, new entrants tend to start attractive tariffs with lower prices than existing competetion. The existing service providers in order to retain and add subscribers, either try to match or beat the prices further down.
Lowering the prices comes in all innovative ways - pulse rate based on seconds, 1 paise per second and then 1/2 paise per second and even roaming comes to paise per second and so on... not to mention teen/youth oriented SMS tarrifs...
Technology (r)evolution and Return on Investment
Service providers can not just bring down the prices without bringing about changes into their technologies and infrastructure involved. This does cost a lot, not just interms of acquiring new tech, but also the way in which ROI gets affected.
1. Technology seems to be evolving all the time and something revolutionary comes up which makes an year old technology almost obsolete. So companies, inorder to keep up with the comptetion, dont get as much time to expect Return on Investment on each technology/infrastrutre they invest in. 2. They constantly need to invest in new tech and infrastructre. At this stage, there seems to be a large gap between the pace at which tech is evolving and the rate at which companies can reap benefits out of it. 3. Under these conditions, it always a huge strain on financing new investments. At the same time its inevitable and probably the only way to survive.
Subscriber Base
In India already the Subscriber base has crossed 40% which means, more than 40 Crore people have mobiles in their hands now.
Going from here would be a difficult task in increasing the number of subscribers. This 40% more or less covers most of the urban areas and to a large extent rural areas if not all. If the number of users has to grow, then it has to be in rural and remote areas and economically challening environment and people. Ofcourse, with dual SIMs and multiple connection per person is always going to add, but it would be hard to count on it for large increase.
Although comparing %, India still lags. 1 out of 3 people carry mobile, which is less compared to other countries with high number of subscribers. In my opinion, practically speaking it might be difficult to acheive that kind of percentage in India. However, its very much possible.
What's after roller coaster
Considering the above points, its going to be a very challening task for any service provider to see through the tough environment. Its going to take lot of financial backing, right moves and pain.
Unless some game plan changes, its hard to imagine all the companies can with stand the low price competetion for long, considering the kind of investment it takes for tech changes, infrastruture, regulatory changes and change in competetion game. This might lead to lots of M&A activities in the future.
Telecom stocks have got beaten down a lot and they might get more beatings as well. In my opinion, its the matter of how long. Right now, there seems to be a broad sense of negativeness about telecom stocks. On the other hand, it might be one of the opportunites to cash in on these stocks for a target of 1-3 or more years term, if you think they (companies) are not going to die down.
All said, life is about uncertainities. Its upto you to decide, 'coz you can hear 1000 different opinions from 100 people, and opinion changes as does the market :)
