Advantage telecom 
Wealth Insight|January 2017

With demonetisation giving a boost to cashless, one sector that stands to gain is telecom 

Devangshu Datta

The initial impact of demonetisation has been pretty severe on cash-dependent industries. Sectors like real estate, construction, gems and jewellery will have to find entirely new ways to function. Textiles, automobiles, retail, etc., will suffer volume loss in the short run as consumers turn cautious.

One industry could, however, see relatively quick recovery and a big growth push, even though the initial impact is negative. The entire concept of going cashless (or less-cash) has to be built on top of the telecom industry's ability to deliver fast, reliable data services everywhere. The banking system runs off the net. Internal reconciliations between branches depend on the net. All financial apps and transaction channels like RTGS/NEFT transfers, ATM withdrawals, cheque clearances, the new UPI, wallet solutions, like SBI Buddy, are all built on top of the internet. Aadhaar can only be verified by using the net.

The credit-card system is also built on top of the net. Those who have used credit cards back in the USA in the 1980s will remember how cumbersome it was. The cashier telephoned the card issuer and laboriously checked details before a transaction was cleared.

Nowadays handheld PoS machines use SIMs to connect to the net, while wired machines use broadband. Mobile wallets - there are five or six mobile wallets for every credit card in India - also use the net. So do debit cards.

Smartphones are a necessity for most transactions and they are becoming cheaper by the day. As of now, there are 250-300 million Indian smartphones, compared to about 650-700 million feature phones. But new handsets are usually smart and feature phones are being phased out.

Apart from financial transactions, smartphones are driven by entertainment. A smartphone can access videos and live cricket coverage. Popular social-media tools like WhatsApp, Twitter and Facebook also work easier on smartphones.

Frankly, the reason why demonetisation was a bad idea is infrastructure inadequacies. Large regions lack acceptable mobile networks and decent power supply to keep ATMs and the internet functional. As of now, mobile wallets also charge high commissions, which is an extra cost compared to all-cash deals. These commissions will only reduce if volumes rise sufficiently. Four out of five villages don't have a bank. The RBI reckons that bank-account penetration is only about 53 per cent. Rural telecom penetration is about 51 per cent and most rural subscribers use feature phones. Urban telecom penetration is 100 per cent or more in most towns, so there is a big urban-rural divide.

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