Oligopoly Emerging in India's Mobile Telephony Market | CORPORATE ETHOS

Oligopoly Emerging in India’s Mobile Telephony Market

By: | March 2, 2018
indian mobile telephony

Mar 2: With mobile operator Aircel filing for bankruptcy under in the National Company Law Tribunal (NCLT) after four months of negotiations with lenders to reach a settlement on its Rs 15,500 Cr debt and Idea-Vodafone merger likely to happen, the Indian mobile telephony is moving away from competition to oligopoly with only three or four players controlling whole market.

Many of the mobile service providers of yesteryears are now not visible in the market having lost their identity by merging with leading players and becoming part of larger entities. Birla Communications Ltd (which had original licenses for Gujarat and Maharashtra) became Birla AT & T Communications Ltd with the merger of Grasim Industries with AT & T Corp. it merged with Tata Cellular Ltd thus obtaining license for Andhra Pradesh circle. The entity acquired RPG Cellular Ltd thereby gaining access to Madhya Pradesh Market. Meanwhile, in 1999 the telecom market had moved from licensing mode to revenue sharing mode to make the ventures viable. The new entity was rechristened Birla Tata AT & T Ltd. The company was renamed. The company was renamed Idea Cellular Ltd and subscriber base reached 1 million mark.

Thereafter it acquired Escotel in 2004 and became part of Aditya Birla Group after Tata Group transferred its entire shareholding in 2006 and by then subscriber base had risen to 10 million.  Thereafter, it acquired Spice Communications in 2008 and became a pan-India operator in 2010.

Mobile Operators

Simultaneously, in 2005, BPL Mobile and Hong Kong based HutchisonWhampoa, the two pioneering service providers were merged in one of the biggest deals valued at $1,156 billion along with Essar Spacetel.

Two years later, the Hutch brand, the 4th largest mobile operator became history as it was taken over by Vodafone by buying 67% stakes in Hutchison Essar. Now, Vodafone is being merged with the inorganically grown entity Idea Cellular. Meanwhile , Tata Docomo became non-existent in late 2017 when Japanese firm NTT DoCoMO exited from the joint venture and Tata Teleservices raised its stake in Tata Teleservices (Maharashtra) Ltd by 11.76% to 48.3%.

Aircel’s promoter, Malaysia based Maxis is now at the mercy of Jio or Bharti Airtel to get strategic financing or intra-circle roaming pacts.

Oligopolistic Market
From a highly competitive market two decades ago, the smaller and medium sized entities went into oblivion having merged with stronger entitites. Now what remains are Reliance Jio, Idea-Vodafone, Bharti Airtel , Tata Teleservices Ltd  and Tata Communications at the Pan-India level and a few players restricted to few regional circles. In the evolutionary growth of mobile market, two major players Reliance Communications and Tata Indicom that provided CDMA (Code Division Multiple Access) services had seen its business become unviable with users shifting in large numbers from CDMA to GSM services.

The reason why there is large number of mergers and consolidation within Mobile Telephony market in India is mainly due to the lower Average Revenue per User (ARPU) and lower Minutes of Usage (MOU) compared to other leading economies.

According to Telecom Regulatory Authority of India (TRAI), the monthly ARPU for GSM mobile in September Quarter of 2017 was Rs 84 and in June quarter Rs 80 compared to Rs 119 for the whole of 2016. The average revenue for data per subscriber in 2016 was Rs 27.50 which has now risen to Rs 88.09 in September quarter of 2017.

GSMA is upbeat about the growth of mobile technologies and services. It generated 4.5% of GDP globally, a contribution that amounted to $3.6 trillion of economic value added. By 2022, it would rise to $4.6 trillion or 5% of GDP. The mobile subscriber base will rise from 5 bn to 5.9 bn by 2025 largely diren by developing countries, particularly India, China, Pakistan, Indonesia and Bangladesh, as well as Sub-Saharan Africa and Latin America. Between 2017-2025, India and China will add more than 200 million and 70 million new subscribers respectively, according to GSMA report.

India’s mobile penetration is 51% (expected to rise to 63% in 2025) compared to China’s 82% (expected to rise to 85%). India’s mobile internet users are expected to rise 330 million from 2017-2025 while China will witness a growth of 350 million.

Economies of Scale and Volumes
As is evident, in a highly capital intensive telecom market, size and scale matters and naturally enough it is turning to an oligopolistic market but only difference is that there is intense price competition ushered in by Reliance Jio and others forced to follow suit rather than price fixing. This should be good news for subscribers who had at one point of time in late 1990’s had to pay Rs 16 for outgoing calls and Rs 8 for incoming calls and no SMS (short messaging service).
The coming years would be more interesting to watch in the merger driven Indian mobile telephony market.

GSMA report notes that global mobile telephony market is going through crisis due to lower unique subscriber growth, regulatory intervention and intense competition putting pressure on company margins. Global revenue will grow by 1%  CAGR (compounded annual growth rate) between 2017-2020 and will roughly stabilize beyond 2020 at $1.1 trillion.