Competitive strategies of players in mobile telecommunication industry

Abstract

Fastest-expanding telecom market in the world: India is the fastest-expanding telecom market in the world with more than 8m subscriber additions per month. India had 238m mobile subscribers as of January. A low overall telephone density (or teledensity) of 25% coupled with a huge population base of 1.1b should provide sufficient growth opportunities for the telecom sector in India. India’s teledensity improved to 25% from 4% within a short span of four years due to favorable demographics, consistent regulatory changes and the low cost of service. Despite the growth, mobile penetration remains moderate: As on end September 2008, India had a mobile penetration of around 27%, 2which is relatively lower as compared to other countries. Given the moderate penetration levels at present, mobile growth in India is expected to continue in the short to medium term. Moreover, within these circles growth has largely been concentrated in the urban areas while penetration in the rural areas remains lower. The future growth is likely to come largely from Class B and C circles and rural areas. Triggers for Indian telecom industry: The next wave of network expansion, infrastructure sharing, sufficient allocable spectrum, favourable policy changes, rising demand for global connectivity and new technologies such as 3G, WiMax, DTH and IPTVshould drive the future growth of the Indian telecom industry. Competitive pressures lead to fall in ARPUs: With growth coming from the lower economic strata and on account of strong competition in the mobile industry, average revenues per user (ARPUs) have moved south over the years. Conservation of capital - the need of the industry: In the past, with costs being amortised over a larger base and steps being taken to rationalise costs, most telecom operators were able to improve their earnings before interest, taxes, depreciation & amortisation (EBITDA) margins. However, in the current market conditions, the margins and return indicators may come under pressure as ARPUs continue to fall. Competition set to intensify further with market liberalisation: The Indian mobile sector is an intensely competitive industry, featuring 10 mobile operators, of which four, namely Bharti Airtel Limited, Reliance Communications Limited, Vodafone Essar Limited and BSNL, together account for almost three-fourths of the entire mobile market share. This is also partly on account of the fact that these four operators have their presence in a larger number of circles as compared with other players. With licences being granted to some of the existing operators for new circles and also to new entrants, competition is expected to intensify further.