Severe competition and nose-diving tariffs in the once-celebrated Indian telecom industry have squeezed margins out of business process outsourcing firms catering to the sector, forcing many to quit the space.
Domestic BPOs such as Tech Mahindra, Intelenet (now Serco), Firstsource and IBM BPO are either walking away from, or choosing not to bid for new, telecom-based contracts, as a steep fall in call rates coupled with a sharp rise in costs have made such projects unviable, industry insiders said.
The BPOs usually follow a Full-Time Employment (FTE) pricing model or one based on duration of calls handled. In FTE, after taking in factors like call volume and call-arrival patterns, the BPO employs a fixed number of staff in consultation with the operator. In the second model, the BPOs typically charge about 3 a minute.
"The decline in call tariffs has affected revenues of the telecom operators who are reducing the payout to partners," said SV Sriram, senior vice-president at Tech Mahindra. He said this was becoming a challenge for BPOs serving the telecom sector, especially in Tier-I cities like Mumbai and Delhi, where costs are soaring.
The average revenue per user for Indian telecom operators has plummeted from about 240 in June 2008 to 96 this June - a drop of 60% in just four years.
TechM just concluded its six-year-old partnership with Tata Teleservices as talks for price renegotiation fell through. It also chose not to renew its three-year contract with Reliance Communications for similar reasons. Sriram said costs in a Tier-I city have risen about 35% in the last three-four years.
Also, the decision by telecom operators to start charging for customer care calls, which were toll-free earlier, led to a significant drop in their numbers, hurting revenues of the BPOs. In the last one year alone, call volumes dropped about 15%, the BPOs said.
Besides TechM, IBM BPO and Serco are the other leading players in the Indian telecom BPO sector, which analysts estimate to be worth about Rs 7,400 crore. All three declined to comment on the specifics of deals that were renegotiated or declined.
However, firms like Vertex, Competent Synergies and Magus, which operate mainly in smaller towns and cities, do not spend as much as their bigger rivals on rent and salaries, allowing them to save on costs. This has made it possible for them to lure customers away from the bigger players with better pricing and deals.
For instance, when Aircel wanted to reduce costs, its existing BPO partner offered to move its centre from a Tier-I city to a Tier-II city and give it a 15% discount. But the telecom company eventually opted for a mid-sized BPO with a larger presence in smaller towns to get nearly double the savings offered by its existing service provider.
But Serco sees this move towards smaller players as temporary. "These contracts are going from larger player to smaller and Tier-II companies, but there are short-term gains. There will a consolidation in the market," said Bhupender Singh, CEO for AMEAA (Africa, Middle East, Australia and Australasia) at Serco. Serco's revenue from the domestic telecom segment makes up only 40% of the total, down from 70%, three years ago.
But some analysts believe that the turn of events should prompt Indian BPOs to move up the value chain beyond plain vanilla customer care call centres. "The BPO players can leverage on the existing opportunity by moving up the value-chain and offering new services like call management, collection management," said Milan Sheth, partner, technology advisory services at Ernst & Young.