Case - Telecom Sector in India.pdf

Case - Telecom Sector in India.pdf

• 1.
  Telecom Sector inIndia – Evolving Market Structure We have all studied types of market in an economy: ▪ Perfect competition ▪ Monopoly ▪ Monopolistic Competition ▪ Oligopoly ▪ Duopoly From time to time we have been loaded with examples relating to the above competitions. Indian Railway is an example of a monopoly – where there is just one seller. Likewise, there are a plethora of other examples falling in the rest of the competitions. But the telecom sector in India is one such sector that has gone through a number of competitions in the country. From emerging of the telecom sector in India to its growth and maturity, it has experienced almost everything. 5 years from now, the telecom sector in India will be given as an example that explains (almost) all kinds of competition in a single sector. Early Days of Telecom Sector in India – It’s not like the telecom sector in India was flooded by telecom operators. Everything starts with a minimal approach and when a particular sector is carefully developed and nurtured that’s the time other players start to show up. The telecom sector in India started in 1851 when the first operation landlines were laid by the government nearby Calcutta. In 1881 telephone services were introduced in India and telephone services were merged with the postal system in 1883.
• 2.
  Department of Telecommunications(DOT) was established which was an exclusive provider of domestic and long-distance service that would be its own regulator (separate from the postal system). Indian Radio Telegraph Company was established in 1923 and after independence, all the foreign telecommunication companies started entering India from time to time. Early days of the telecom sector in India had 2 wholly-owned government companies – Videsh Sanchar Nigam Limited (VNSL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for metropolitan areas in 1986. During the 1990s the opening up of the economy led to the benefits of the telecom industry. In 1994 National Telecom Policy (NTP was formulated which was the first attempt to give a comprehensive roadmap for the telecom sector in India. Telecom Regulatory Authority of India (TRAI) was established in 1997. It was formed to act as a regulator to facilitate the growth of the telecom sector in India. Early days of the telecom sector didn’t have many players because the government was just nurturing and preparing the telecommunication ground for other players to operate within the limits set by the authorities. Summing up, the economy witnessed only a few players in the sector during its early days. While there was not much of the competition, Indians were also slowly moving towards fixed-line connections to broadband and mobile phone connections. Post-Independence Scenario – So, the ground was set, authorities and regulations were established. All that was needed was more players to enter the telecom sector in India and uplift the telecommunication sector of the country.
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  The telecom sectorin India can be divided into 2 segments – Fixed service provider (FSPs) and Cellular services. State operators (BSNL & MTNL) account for almost 90% of the revenues from basic services. Wireless subscriber base skyrocketed from 33.69 million in 2004 to 62.57 million in 2005. Making it difficult for the existing players to take care of these huge numbers. The wireless technology used in India is System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). Post-independence scenario witnessed around 9 GSM and 5 CDMA operators providing mobile services in 10 telecommunication circles and 4 metro cities, covering more than 2000 towns in India. Slowly and gradually telecom sector in India diversified its portfolio and extended to internet, broadband (wireless and fixed), cable TV, SMS, IPTV, soft switches and many more. The post-independence era (the late 90s – 2000s) witnessed a number of players entering the market after the government established various norms and regulations that are vital to run the sector. ▪ State-owned companies – BSNL & MTNL ▪ Privately owned Indian companies – Reliance Infocomm & Tata Teleservices. ▪ Foreign companies like – Hutchison-Essar, BPL Mobile, Bharti Tele- Ventures, Idea Cellular, Escotel Spice Communications, Uninor, Aircel, MTS, Etisalat, Videocon, S-Tel and many more. From not many sellers in the market, India was flooded with a plethora of options to choose from. Before Reliance Infocomm disrupted the market, the telecom sector in India was a monopolistic competition.
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  New entrants hadbasically low barriers, all they had to do was to be a deep-pocketed brand and come up with an offering loaded with offers, discounts, and affordable tariffs and everything else would follow. The Government Broadband Policy aimed at 9 million broadband connections and 18 million internet connections in 2007. During that time, the telecom sector in India contributed approx. 1% of India’s GDP. The telecom sector in India had only 54.6 million telephone subscribers in 2003, the same number increased to 429.7 million at the end of March 2009 and then to 562 million as on October 31st, 2009. The increase is entirely due to a humongous jump in wireless connection at CAGR of 60% per annum in 2004. The telecom sector in India is the 2nd largest wireless network globally with 525.1 million wireless connections. Too Many Players, Too Many Complexities – If you are well aware of the types of competitions in an economy, then you must also be aware that there is a saturation point of growth. Once a market reaches its saturation point, it tends to decline. After witnessing a plethora of players in the telecom sector in India, there was a point when new entrants found it quite difficult to make a difference and gain the market share. Tariffs were almost the same because all the major players formed a coalition where they decided what will be the optimal number of tariffs so that all the telecom giants are able to gain with it. There was a time when (and if) 1GB data limit was exhausted, recharging it was quite expensive. Thus, all of us used to use the data wisely because the cost of recharging was quite high, be it any telecom operator.
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  Everything was goingfine till the time another major giant entered the telecom sector in India and actually disrupted everything. This is the time when the monopolistic competition started witnessing a crack in a coalition. Who Is the Disruptor Then? When all of us were stuck with Airtel, Vodafone, Idea, BSNL, MTNL, and others that offered a range of services that was a bit costly (especially internet services), Reliance JIO entered the telecom sector in India like a savage and disruptor. Everything was the same. JIO was also just another telecom giant that was able to enter the market because it was deep-pocketed and backed up by Mukesh Ambani! Reliance JIO entered with a bang and surprised all of us. Users of Reliance JIO not only enjoyed free unlimited calls (to any network), but they also surfed the internet without being concerned about data limits. Internet was made free, calling/texting was made free. The telecom sector in India witnessed a revolution. While other players charged hefty amounts on recharges, Reliance JIO was the most affordable of all. Initially, telecom giants didn’t care much about it but slowly and gradually problems emerged. Almost every telecom company started to lose its market share to Reliance JIO. Telenor (formally known as Uninor) and others after realizing that they will not be able to survive much, exited the market. Not only declining userbase but increasing adjusted gross revenue (AGR) made the telecom game even more difficult. Major telecom giants like Airtel, Vodafone Idea, Reliance Communications, Tata Teleservices
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  & Aircel togetherhave to pay around INR 75,802 cr to the government of India as their pending dues. Another major disruption happened when Vodafone and Idea both merged their businesses in India. After losing their market share, and increasing debts, the 2 of them joined hands and instead of competing against one another, they decided to compete against Airtel and JIO. Present Scenario of Telecom Sector in India – After a series of disruptions, mergers and a number of telecom players exiting the market, India now has 3 major players in the telecom sector. Vodafone Idea, Bharti Airtel and Reliance JIO. Once the sector had more than 10 players is now operating with just 3 players! In fact, Vodafone has expressed its concerns about repaying the debts and clearly announced that after paying the outstanding amount against Vodafone, it might not be able to operate and might exit the Indian market. Vodafone, Idea and Bharti Airtel once reported record-breaking userbase has now shrunk like a crushed paper ball and it seems impossible for them to compete against Reliance JIO. Rise of Duopoly in Telecom Sector in India – After Vodafone being vulnerable, the risk of a duopoly in the sector is higher than before according to analysts. In all, as many as 15 entities owe the government INR 1.47 lakh crores in unpaid license fee and another INR 55,054 crore in outstanding spectrum usage charges. Telecom in India exhibits that the change is humongous. Nothing is constant, and disruption is everywhere. If an existing company cannot be an innovator as well as a disruptor, some other company will definitely overtake it leaving no space for other players to stand up once again.