Harsha Upadhyaya, Chief Investment Officer, Equity, Kotak AMC
As things stand, the telecom sector would continue to see intense competition going forward. Even in the past, when the industry tried to consolidate and get some pricing power, the return ratios were in low single-digits. Even when the players were making reasonable profits, the return ratios have been low. Some players are making losses and have large debt on their books. Couple of years back, the issue of spectrum auction cropped up, but now it has become a recurrent business cost. Telecom players need to keep buying spectrum to stay competitive and sustain their business. Two years back, revenues from short message service (SMS) was expected to turnaround the fortunes of telecom players. But, SMS has already become an obsolete or archaic way of communication. Amid all these changes, a new competitor with huge investments has entered the scene. In the near-term, telecom players’ profitability would remain under pressure. From the market’s standpoint, no real wealth creation is going to take place in this sector. We have been out of this sector for three years now and continue to remain circumspect on the future prospects of this space. The telecom players may even miss the conservative estimates of the analysts, going forward.
PVK Mohan, Head – Equity, Principal PNB AMC
Entry of Jio can potentially expand the addressable market for the incumbent players as well. Jio with its content-focused strategy is looking to target the entertainment spend of the household rather than per mb or per minute spend. If Jio succeeds in this strategy, it will expand the market. Today, different platforms are getting connected with each other. If data speeds go up, operators can even grab the TV market. Apps like hotstar and Colors’ voot are already trying to wean away TV viewers to their platform. Besides, this is not the first time that a well-capitalised player is entering the market. We saw a similar situation back in 2010 when Tata entered the scene and offered prices as low as 40 paise per minute. After waiting and observing for a few months, the incumbent telcos tweaked their own pricing to compete with Tata. Even in the recent case, the operators are currently in the wait and watch mode. In a matter of time, the operators would be launching their own attractive bundles to compete with Jio. While stock market prices could see volatility over the next three quarters or so, the industry leaders are well-placed to cash in on this expanding market.