Title:Issues in the Telecom SectorObjective:1.Find out the factors that contribute towards the losses in the firstyear of operation.
Suggestion for relaxation of normsCase Description:
Bid winner should acquire Universal Access Service License (UASL)by remitting Rs. 1650 crores for which there will be a benefit of priority 4.4 MHz of 2G Spectrum
There is a lot of uncertainty on spectrum sharing, spectrum tradingand license fees.3.Cost of 2G, 3G mobile operations for any company is US $. 8 – 15 Bnwhich includes cost of merger and acquisition
FDI cap of 74% for global operators.Analysis:Reasons for Losses:
The first and the foremost factor which contributes to thelosses in the first year of operation is the fixed cost. TelecomIndustry involves huge towers, state of the art electronicequipments and Information Technology Spending whichcontribute to the huge costs.2.The second factor which contributes to the losses is the Costof Customer Acquisition and the promotional expenditures. The initial year of operation always call for a huge investmentin terms of the advertisement and promotional campaign. Alsothe customer acquisition cost is very high during theseperiods. At later parts of their operations the companies spendnominal amounts in retaining customers.
The ever lowering Tariff’s is also a major factor for the losses. The Pareto principle of 20% of the customers delivering 80%of revenues no longer works here. Telecom sector in India nowconcentrates on more customers in terms of volume and assmall an amount from each customer possible to make up thebottom line. In case the desired number of customers is notmet they incur losses.Suggested Reforms in the Telecom Sector:
Government should clear its stands on the Spectrum Allocationprocess and give an assurance that there would be no redtapes, no confusions and no corruptions in the wholeallocation process.