India's telecom market – Challenging times! Interesting times!

Well, challenging or interesting - it depends on whether you are a subscriber or a service provider.

With the number of mobile subscribers crossing 440 million mark, India will reach its goal of 500 million much sooner than expected. Even then, half of India is still waiting to be acquired. But the low hanging fruits are gone. So far, operators have enjoyed customers in metro and other urban cities spending relatively more on telecom services. But is it going to continue?

Definitely, the next phase of growth will be challenging. Acquisition of rural and semi-urban population will be difficult and costly at the same time. On top of that, it will negatively impact the already declining ARPU levels of these operators. There will be other challenges and in total we should expect innovative business models. This is easier said than done. Will the situation be same for all the operators?

Of course not. Big guys like Bharti, Vodafone and Reliance are definitely in better positions. They are in the business for long time. They know the market. They have created the market and they have grown with the market. They have the execution skills, top of the class management, big pockets, big parental back-up and so on and so forth. These factors have definitely given them the edge. One can add the ability to innovate, create a new ecosystem, flexibility and efficiency of operations and thus the capability of changing the rules of the games, especially true for Bharti. Then how about the new players?

Plethora of new operators have joined the established ones in the recent times. Many new players were allotted new 2G licenses by the government. And some of them have got suitors in the form of big international operators such as Telenor, Etisalat, Batelco, etc. And Sistema has also bought stake in the CDMA player Shyam. Most of them have big plans. But it will require big capex spending on building their networks, distribution, brands and IT infrastructure. This need will also encourage more infrastructure sharing. These players may find going a bit easier in B and C circles where penetration is much lower. But this strategy will also result into lower ARPU. It will be a while when these players will start going in the rural areas. They would like to watch the moves of the market leaders first and then decide. Partnership of global players will definitely be a big plus for these players both in terms of experience as well as capacity to spend. How about the rest of players?

This leaves us with players who are in middle of the pack, such as Idea, Aircel, TTSL, BSNL, etc. Idea and Aircel are currently in the phase of expanding their networks at a pan India level. While Idea went for acquiring regional operator Spice, it also have Telekom Malaysia as a partner. Aircel has got the backing up of Maxis and TTSL has experience of NTT to leverage on. This will help them in growing and gaining markets hare. BSNL and MTNL are not so competitive and actually they are losing market share. But they are still Government owned and thus will enjoy favors that no body else would. This was clearly evident in the manner govt. allotted 3G spectrum to them. It is a different story that they could not capitalize on that.

And we must also mention the entry of CDMA players Reliance and Tata into the GSM market, which will make the industry even more competitive.

Subscribers will have more choice, however, quality of service will continue to be a concern. For operators, it will be growth but they will not enjoy the same levels of margins. Margins will be even lower for the new operators.

In order to stay competitive and profitable, operators will embark on a quest of new ways for servicing customers. This will open ways for new partnership models, a new ecosystem, new set of products and services, local, regional and community-based targeting and newer ways for delivering servicing.