A recent wave of consolidation in India's telecom market could leave thousands of sector employees without jobs in the coming months.
Either directly or indirectly, nearly 150,000 people could find themselves out of work as a result of the mergers and acquisitions that are now sweeping through the market, according to press reports.
Despite contributing an estimated 6.5% to India's GDP last year (according to figures from the Department of Industrial Policy and Promotion and the Department of Telecom), India's telecom industry faces mounting debts as well as dwindling sales and profits.
Borrowings have hit a record $55 billion, and the current hyper-competitive conditions have already prompted several smaller players to quit the market. Market leader Bharti Airtel Ltd. (Mumbai: BHARTIARTL) has now snapped up Telenor, Videocon Telecommunications Ltd. and Tata Teleservices Ltd. , while Vodafone India and Idea Cellular Ltd. -- the number two and three players -- are merging in the industry's biggest deal.
Earlier this year, the Reserve Bank of India (RBI) drew attention to the sector's debt problems when it warned commercial banks about giving loans to firms in the telecom sector. "The telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one," it said in a note.
Borrowings have skyrocketed as operators have lavished funds on additional spectrum licenses to support higher-speed mobile broadband services. Tata Teleservices had debts of 340 billion Indian rupees ($5.2 billion), while Reliance Communications Ltd. , India's sixth-biggest player, has a debt of INR450bn ($6.9 billion).
Given that tariffs are now among the lowest in the world, this debt problem has caused profitability to crash. Service providers have been forced to take dramatic steps to reduce expenditure at all levels.
Reports indicate that Airtel's recently announced takeover of the consumer business division of Tata Teleservices will lead to about 5,000 layoffs. There is also speculation that Airtel, Reliance Communications and Idea have already asked a number of their employees to leave. In the current economy, which is reeling from the effects of demonetization and the introduction of a goods and services tax, those workers stand little chance of finding alternative employment in the telecom industry.
But it is not only service providers that are being forced to lay off staff. India's devices industry has also been badly hit by the government's demonetization moves last year. The removal from circulation of higher-value banknotes led to a fall in revenues and profits for device makers, forcing smaller manufacturers like Intex Technologies (India) Ltd. and Micromax Informatics Ltd. to slash headcount. The launch of the low-cost 4G Jiophone by Indian new entrant Reliance Jio almost finished off the 2G feature phone segment entirely.
Automation also now poses a threat to employees that have clung on to their positions. Desperate to reduce spending, operators will be looking more keenly at automation technologies that allow them to maintain networks with minimal human intervention. That could lead to further job losses in the coming months and years.
India undoubtedly benefits from a vibrant and dynamic entrepreneurial culture, especially in the fields of the Internet of Things and artificial intelligence, producing some of the best software engineers in the world. That offers some cause for optimism about the future. But it seems unlikely that many of the jobs now disappearing will ever come back.
— Gagandeep Kaur, contributing editor, special to Light Reading