New Delhi, March 22 -- Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd and other software services exporters are hoping that an increase in operational expenditure in the telecom industry and possible changes in a US law on the so-called net-neutrality issue would help them boost revenue.
"Telecom is the wildcard that will determine how the IT (information technology) industry goes this year," said Subhash Dhar, a senior vice-president who heads the telecom business unit at Infosys.
Net-neutrality norms prevent communication service providers (CSPs) from charging commercial Web companies for doing business over their networks, on the grounds that they are not supposed to discriminate between different types of traffic flowing through their networks.
CSPs "have not found it intuitive to spend on capital expenditure when the monetization models arising out of new capital expenditure are not clear," said Dhar.
While capital expenditure (capex) in telecom networks picked up towards the end of 2009, this did not translate into a pick-up in operational expenditure (opex), which typically provides business directly to IT service providers.
"Opex did not pick up all of 2010," said Dhar. "For operational expenditure, you need a business case for the next quarter. While this trend is still there, we are seeing some significant moves in the US with vociferous opposition on this net-neutrality issue. The possibility of legal challenge exists, and in my view, the CSPs will win."
Last month, the Republican Party moved to block the US Federal Communications Commission (FCC) from enforcing the net-neutrality regulations by attaching an amendment aimed at preventing the FCC from using government money to enforce new rules that prohibit high-speed Internet service providers from distinguishing between different types of Internet content and services.
The telecom sector was an important one, and it should begin to see some growth at least in the second half of the year, said Abhishek Shindadkar, an IT analyst with ICICI Securities. "A capex cycle has just ended, and we should see some opex start to happen."
Indian firms have varying degrees of exposure to telecom. Infosys' revenue from the sector fell to 13.7% of overall sales in 2010 compared with 16.5% in 2009. It is a similar story for TCS, though the decline has been less steep. Telecom accounted for 11.9% of TCS' revenue in the third quarter of fiscal 2010-11, compared with 12.8% in the previous quarter. It was 12.2% for fiscal 2009-10, compared with 14.4 % in the year earlier.
TCS vice-president and head of telecom business unit Ravi Viswanathan said he, too, saw the possibilities of a pick-up in spending following such changes. "Whether it will happen this year itself-I am hopeful," he said. Capex was also happening due to roll-outs in new technologies such as LTE (long-term evolution) networks, he added.
Wipro was hit particularly hard by this trend in telecom last year, as its exposure is much higher to the telecom industry compared with peers. In the December quarter, 25% of Wipro Ltd's revenue came from what it calls telecom and technology. An email sent to the firm was unanswered.
Viswanathan said the telecom vertical was among the earliest to outsource, and steadily a lot of activity that was earlier considered "core", such as network maintenance or even billing, had moved to third-party service providers. "There is a lot of opportunity we are expecting in managing customer experience, network analytics and the like."
Published by HT Syndication with permission from MINT.
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