8/9/2019 Price Wars in Telecommunications Industry

1/4

PRICE WARS IN INDIAN TELECOMMUNICATIONS

INDUSTRY

C. VISHAL CHANDRA

GIIB

Telecommunications industry is no doubt one of the fastest growing sectors with respect to India

in the current decade.With the event of the existing companies crossing the break even and the

entry of many new foreign companies to gain acceptance and have a major market share in India

this sector has given lot of scope for the price wars. The decline in tariffs for the calls is so much

that the companies are experiencing a decline in their revenues and are under a confused state of

what the next strategy be for acquiring a major market share and also keep the revenues up.

This started with the entry of NTT DOCOMO a leading telecom operator of Japan with over a

50% market share their forming a joint venture with TATA in November 2008. TATA also were

not under GSM service providers until then accepted to form a joint venture to combinely

provide GSM services starting with 18 telecom circles (which majorly includes south India) in

India. Not that the price wars started with the entry of DOCOMO in India. The price wars

already existed between the then major service providers like Airtel, Idea, and Vodafone Essar

etc. Also some of the new entrants like Aircel were trying to have a market share. The problem

started with the introduction of tariffs with respect to pulse ( per second call rates). TATA

DOCOMO started its services in India with call rates of 1paise/ second. This made many other

major service providers to rethink about their marketing strategies and have retain their market

shares. This made other telecom service providers to automatically follow per second billing

despite of their decline in revenues.

India is the world's second largest wireless communications market after China. But the

competition among domestic and international companies for new phone subscribers is digging

into profit margins. India adds more than 10 million new mobile phone connections every month.

The lucrative business has attracted domestic and international companies to the Indian market.

The present estimate of the total users in India is about 540 million which nearly a half of the

8/9/2019 Price Wars in Telecommunications Industry

2/4

total 1.2 billion population. Despite all this the call rates in India were considered to be much

lower compared to other western countries ( it is considered that the present call rates in India

were only 0.02 cents which is very low compared to about 2 to 3 cents in US). Every time a new

player enters the Indian telecom industry, the profitability of all the existing players take a dip.

Industry revenue growth for the quarter ending September 2009 was 1.7% quarter-on-quarter (Q-

on-Q) and 8.7% year-on-year (Y-on-Y), substantially lower than subscriber growth at 10.4% Q-

on-Q and 49.6% Y-on-Y," says a report by equity research firm Enam Securities. "The

aggressive entry by new GSM players has compelled the incumbents to reluctantly join the tariff

war to protect their market share."

The industry clocked about Rs. 38,755 crore in September 2009, which was lower than the

sector's revenues in the quarter ended December 2008, when it recorded Rs. 39,408 crore despite

having 125 million fewer customers then." The report notes that 13 operators are fighting for

share in a market that many believe can optimally support four or five -- and four more players

are planning to enter the market by next year.

PERFORMANCE ANALYSIS OF INDIAN TELECOM INDUSTRY PLAYERS

Company

TotalRevenue

in Rs crore(Q2 08-09)

TotalRevenue

in Rs crore(Q2 09-10)

Net Addition inSubscriber

base in million(Q2 08-09)

Net Addition inSubscriber

base in million(Q2 09-10)

MRPU

(inRs)

Bharti Airtel 8923.57 10355.16 8.1 8.14 29.85

Vodafone Essar 4444 5449 5.43 6.4 1.27

Idea 2303.35 2973.91 3.19 8.69 0.17

Reliance 3545.65 3057.89 5.26 6.5 -0.58

Tata Teleservices 513.44 542.79 3 9.68 0.03

Sistema Shyam

Teleservices Ltd.45.75 70.44 0.01 0.77 0.01

MTNL 1231.56 572.06 0.24 0.07 0.78

SECTORALAVERAGE

3001.05 3288.75 3.6 5.75 0.16

At this point of time the major telecom service providers instead of analysing the average

revenues per unit (ARPU) are now depending wholly on marginal revenues per minutes (MRPU)

8/9/2019 Price Wars in Telecommunications Industry

3/4

to estimate their revenues. Every strategy whether it may be the decrease in the tariff rates or

introducing new schemes for the customer to increase the custpmer base were predominantly for

increasing their customer base in the short term which had a severe impact on the revenues of the

whole industry in the long term. Faced with fierce price-war scenario; the marginal revenue per

user (MRPU) of the telecom sector for the September quarter reveals that every new addition to

the subscriber base resulted in a miniscule addition of 16 paise to the revenues of telecom

players, while going forward; intense competition due to number portability between the

operators would further erode their revenues and profitability, according to an Assocham

Financial Pulse Study.

In profitability terms, the net profit of 8 major telecom operators registered a whopping decline

of 127.8 per cent as their total income and expenses increased by 19.5 per cent and 25.1 per cent

respectively during the September quarter.

Intensifying the market competition:

Apart from the price wars one more important issue which is worrying the telecom providers

which is said to make the competition fierce is the mobile number portability (MNP) which is

said to be made available by the mid 2011 by TRAI ( telecom regulatory authority of India).

A study reveals that 18% of the already existing users are ready to change their mobile operators.

This made the competition in the telecom sector more fierce. Every service provider is now

making new strategies and rethinking their marketing strategies to retain their customer base and

increase it to the maximum extent.

Enhancement in quality of the service is one more key factor which has been understood by the

companies. Thus, they are increasing their service levels by upgrading their existing

infrastructure and also by providing several other schemes with respect to value added services

and internet services ( of cource internet service comes under value added services).

SMS is one of the major area of the telecom operators. It is estimated that about 5% of their total

revenues are from SMS services. This no more can be a source of income for the telecom

operators it is considered that almost the SMS services are now free. Apart from this with the

drastic decline in call rates in the recent past and will also in the near future will tell the same.

8/9/2019 Price Wars in Telecommunications Industry

4/4

Some solutions:

one point many telecom operators are missing is that the teledensity ( teledensity is the number

of users for every 100 people i.e for a teledensity of 25% there are 25 users for every 100 people

in that locality) in majority of the rural areas in only about 12% to 15% and in many cases it will

not even cross the !2% mark. This is one of the great opportunities for all the telecom operators

to act immediately which not only increases their customer base but also increases their revenues

considerably. Thus, companies must look for increasing the rural customer base immediately to

survive in the competition.

While increasing the rural customer base the telecom operators can simultaneously start working

on their value added services in both urban and rural customers to improve in terms of their

revenues.

Also with improved services of providing internet also helps the telecom operators to a greater

extent. This will make the operators differentiated between their competitors if they provide un

interruptible and fast internet services in affordable prices ( after all maintaining utmost quality is

the only mantra to be successful in the contemporary markets).