By the end of 2010 India is predicted to become the second largest user of mobile phones in the world with 600 million users. The entry of new players and increasing subscriber base reflects India’s market potential. We are already the world leader in terms of the sheer number of telecom operators, with twelve established players and three new entrants – Uninor, Datacom and Etilsalat-Swan Telecom. The only other country that can boast of similar numbers is Hong Kong with a maximum of six operators. The telecom market in India might be growing fast, but surviving in this highly competitive market is a struggle for these players. The sector is rife with cutthroat competition with operators trying hard to retain existing customers and widen their customer loyalty.
In the medium term, telecom will be a huge merger and acquisition play. Many names are expected to crumble and cascade into the folds of the others for large operators will definitely be on the prowl to acquire weaker counterparts,” forsees Harish Bijoor.
Price war is the new strategy with most operators buying into the ‘per second’ billing tariff. Mobile tariffs in India are already amongst the lowest in the world and the new tariffs entail charging customers on a per-second basis instead of the earlier per-minute charge. Pricing strategy looked to be the differentiator among service providers until recently. With the government issuing fresh licenses to players, the Indian telecom landscape has become crowded. “Newer capacities are getting installed every month, implying short term over capacity in the system,” says Nishna Biyani, Research Analyst tracking the telecom sector at Prabhudas Liladhar, an equity research and financial services group. “Too many mouths are chasing the limited hands available, leading to pricing pressure,” she adds.
Operators are now adopting predatory pricing strategies to garner subscribers and scale up. Service providers are validating their strategy keeping in mind the needs of a consumer. “The ultimate need of the customer is feasible talk-time keeping the costs at an end,” says Stephan Kercza, Uninor’s hub head for South India. “Research done by analysts in the sector indicates that on a broader perspective, there are two types of calling patterns in mobile usage – multiple calls with short call duration and minimum number of calls with long call duration. Although the strategy of 29 paisa per minute was to counter the pressure created by Docomo’s per second billing, we took a clearer, segmented approach.” Even large operators like Airtel, Vodafone, BSNL and Aircel are under pressure to respond to competition and launch per-second billing.
Rajiv Rajgopal, Chief Executive Officer of mobile services at Bharti Airtel reiterates, “Although we have already introduced per second billing, our strategy is to strengthen our position in the Indian market by segmenting our customer base and offer relevant products like STD, diet SMS plans and many other value-added-services.”
While companies have responded to the competition call by drastically cutting down their tariffs, every economic model requires solid backing of returns. Analysts are compelled to question the viability of the new scheme of things in the wake of reduced revenue numbers through the spectrum. Empirical clues point that big players can measure up to new changes in business strategy but doubts creep in as to the sustainability of fledgling operators. Newer operators who are looking at garnering subscribers at low price points would have to delay their breakeven period. “The current price war is totally unsustainable in the medium term,” opines Harish Bijoor of Harish Bijoor Consultants. “However, the new players would have accounted for short term and medium term bleeds in an effort to garner more customers,” he adds. Tangentially, larger players are confident that, while lower tariff is a good benchmark for competition as well as a lucrative option for customers, it may not be the only parameter for their patronage.
“Critical factors like widespread and robust network, deep distribution and world-class customer service come into play once the price game stands evened out,” adds Kumar Ramanathan, Chief Operating Officer of Vodafone.
Another apparent factor that will come to play in the coming months is the issue of number portability. Subscribers will be able to retain their mobile numbers even when shifting to another service provider. Users of major networks who are sitting on the wall of dissatisfaction due to poor network coverage and customer service issues are going to use this opportunity to jump operators, although it has given rise to opposing opinions. Some experts believe that only the upper 5 per cent of the mobile users today (primarily post-paid subscribers) will be in the category that will make a decision based on number portability. The remaining 95 per cent in the pre-paid segment don’t mind changing their numbers frequently.
“With tariffs almost the same across operators, it doesn’t make much sense for subscribers to move operators at least on the price factor,” believes Biyani. However, there is consensus across the board that the current focus of newer operators is on acquiring more customers. Bijoor feels that while the percentage could be small, in terms of numbers, the loss to the established players because of number portability could be substantial. “Newer operators hypothetically may have a marginal edge, but their network coverage does not match with some of the current operators,” says Biyani.
Future of the industry
According to TRAI, current fiscal’s third quarter performance of most operators show that the industry gross revenue is on a decline, even though the number of subscribers is breaking all previous records. Analysts have attributed the dual card phenomenon for undisturbed revenue numbers. Existing subscribers are acquiring additional connections, resulting in a seeming increase in subscribers but in fact, it has merely led to a bill being split between two or more service providers. With so much pressure on pricing and sustainability, operators and analysts alike feel that consolidation will be the order of the day, going forward. “In the medium term, telecom will be a huge merger and acquisition play. Many names are expected to crumble and cascade into the folds of the others for large operators will definitely be on the prowl to acquire weaker counterparts,” forsees Bijoor.
“Consolidation will be the straight derivative of a sector that is overcrowded and established players can look forward to some exciting times,” adds Ramanathan. The sector will hope to see better profitability and rationality in pricing of products once mergers and acquisitions come into effect. Surprises may spring up in terms of smaller fish swallowing the big names. But for the moment none of the existing names in Indian telecom look sacrosanct, never mind their current size and ambition. For operators through the spectrum, the countdown has begun, for every second counts.